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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED)
October 25, 1999 (October 8, 1999)
OMNI NUTRACEUTICALS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
UTAH 0-18160 87-046822
(STATE OF OTHER JURISDICTION (COMMISSION (IRS EMPLOYER
OF INCORPORATION) FILE NUMBER) IDENTIFICATION NO.)
5310 BEETHOVEN STREET
LOS ANGELES, CA 90066
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 253-5305
N/A
(FORMER NAME AND FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
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OMNI NUTRACEUTICALS, INC.
TABLE OF CONTENTS
FOR
CURRENT REPORT ON FORM 8-K
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Page No.
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Item 5. Other Events................................. 3
Item 7. Exhibits..................................... 4
Signature ............................................. 4
Exhibits ............................................. 5
</TABLE>
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ITEM 5. OTHER EVENTS
Omni Nutraceuticals Inc. ("Omni") has resolved a dispute between itself
and co-founder Klee Irwin, who is currently the CEO of HealthZone.com
("HealthZone"), Omni's e-commerce subsidiary, and was previously the CEO of
Omni.
Among the principal terms of the settlement, the parties agreed to; a
mutually agreeable severance package for Mr. Irwin; Mr. Irwin agreed to
assume the defense of a claim previously asserted by the former shareholders
of Health & Vitamin Express, Inc. acquired by Omni in February 1999; Mr.
Irwin agreed to reimburse Omni for any excess tax payments that may have been
made on his behalf and to fund substantially all of the net operating losses
of HealthZone pending its spin-off or sale; Omni and Mr. Irwin agreed to
certain put and call options with respect to HealthZone in the event it
fails to be spun-off by June 2000; Mr. Irwin guaranteed a minimum value to
Omni stockholders for their interest in HealthZone on the earlier of one year
after the spin-off or October 8, 2001 (assuming no prior exercise of such
options to acquire HealthZone); and Omni and Mr. Irwin indemnified each other
against certain potential claims. In connection with the settlement, Mr.
Irwin and Omni's chairman R. Lindsey Duncan, who together own approximately
74% of the outstanding shares of voting capital stock of Omni, each entered
into a five-year voting agreement pursuant to which Mr. Irwin has agreed to
certain stand-still provisions and he and Mr. Duncan have agreed to vote
their respective shares of Omni common stock for their respective nominees
for Class I and II directors and the candidate for Class III director
nominated by the two Class II directors.
A complete description of all of the terms and conditions of the
settlement, and corresponding voting, escrow and tax indemnification agreements
are attached in Exhibits hereto.
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ITEM 7. EXHIBITS
The following materials are filed as exhibits to this Current Report on Form
8-K:
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Exhibit Number Description of Exhibit
- -------------- ----------------------
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10.13 Settlement Agreement dated October 8, 1999 between Omni Nutraceuticals
Inc. and Klee Irwin.
10.14 Tax Indemnification and Allocation Agreement dated October 8, 1999
between Omni Nutraceuticals Inc. and Klee Irwin.
10.15 Voting Agreement dated as of October 8, 1999 by and among Klee Irwin
and Margareth Irwin, and R. Lindsey Duncan.
10.16 Escrow Agreement dated October 8, 1999 by and among Mr. Klee Irwin,
Wells Fargo Bank as the Escrow Agreement and Omni Nutraceuticals Inc.
</TABLE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
OMNI NUTRACEUTICALS, INC.
Date: October 25, 1999 By: /s/ Corey E. Fischer
---------------------
Corey E. Fischer
Chief Financial Officer
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EXHIBIT 10.13
EXECUTION COPY
SETTLEMENT AGREEMENT
THIS SETTLEMENT AGREEMENT (together with all Exhibits and amendments
hereto and thereto, the "Agreement") made as of October 8, 1999 by and between
Omni Nutraceuticals, Inc. (formerly known as Irwin Naturals/4Health, Inc.), a
Utah corporation (the "Company") and Klee Irwin, an individual residing at 7825
Veragua Drive, Playa del Rey, California 90292 ("Irwin").
W I T N E S S E T H:
WHEREAS, pursuant to an Employment Agreement dated June 3, 1998 by and
between the Company and Irwin (the "Employment Agreement"), Irwin was employed
as President and Chief Executive Officer of the Company; and
WHEREAS, by mutual agreement effective the close of business on April 20,
1999, Irwin resigned as Chief Executive Officer without Good Reason (as defined
in the Employment Agreement), thereby terminating his Employment Agreement; and
WHEREAS, effective April 21, 1999, Irwin was elected Chief Executive
Officer of HealthZone.com, a California corporation wholly owned by the Company
("HealthZone"); and
WHEREAS, the Company and Irwin have each asserted claims against each
other in connection with Irwin's resignation as Chief Executive Officer of the
Company; and
WHEREAS, in order to avoid costly and time consuming litigation the
Company and Irwin are prepared to settle their respective claims on the terms
and subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged and confirmed, the parties hereto hereby agree as follows:
1. SEVERANCE BENEFITS. The Company hereby agrees to pay as severance
benefits to Irwin solely the amount of Irwin's salary as Chief Executive Officer
of HealthZone, the cost of his automobile (until it is sold or the lease thereof
is terminated which Irwin agrees to use his best efforts to effect as soon as
possible, but by no later than 45 days after the date hereof) and to continue to
provide health insurance coverage for Irwin and his immediate family under the
Company's health insurance plan, retroactive to October 1, 1999, all such
benefits to be paid at the same rate and on the same basis as were provided to
him under the Employment Agreement, until the earlier of (A) April 16, 2000 or
(B) the completion of an initial public offering by HealthZone which results in
offering proceeds of at least $1,700,000 or (C) a merger, consolidation, or
reorganization of HealthZone which results in an increase in HealthZone's net
working capital (determined in accordance with generally accepted accounting
principles
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consistently applied with prior periods ("GAAP")) by at least $1,700,000 or
(D) the sale of HealthZone or all or substantially all of its assets in one
or more transactions for consideration valued in excess of $1,700,000 or (E)
the receipt by HealthZone of at least $1,700,000 in additional capital in the
form of cash, cash equivalents or liquid current assets or (F) the bankruptcy
of HealthZone. Any such capital infusion may be in form of cash, securities,
or other form of equity infusion in accordance with the provisions of Section
3(c) below.
2. ASSUMPTION OF OBLIGATIONS AND REIMBURSEMENT OF CERTAIN COSTS AND
EXPENSES. Irwin hereby agrees to assume the following obligations of the
Company and reimburse the following expenses incurred or which may be incurred
by the Company upon the following terms and conditions:
2.1 HVE/HEALTHZONE. (a) Irwin hereby indemnifies and agrees to hold the
Company harmless, without limitation in scope or amount, from any and all
uninsured Losses (as defined in Section 6(a) hereof) incurred by the
Company attributable to any claims asserted by any HVE Stockholders (as
hereinafter defined) and any of their respective heirs, executors, legal
representatives and assigns arising out of, attributable to, or in
connection with the acquisition of Health & Vitamin Express, Inc.
("HVE"), pursuant to the provisions of that certain Agreement and Plan of
Merger dated February 15, 1999 ("Merger Agreement") by and among the
Company, HVE, and David Mandel ("Mandel"), Jeffrey D. Segal and Gordon
Barker (collectively, the "HVE Stockholders") and the performance by the
Company of its obligations thereunder, including, without limitation,
pursuant to the provisions of Sections 2.02, 6.02, 6.03(d), 8.05, 9.03
and 10.11 of the Merger Agreement, and agrees to assume the defense of
any claims related thereto in accordance with the provisions of Section
6(c) hereof; provided, however, that at the written direction of Irwin
the Company agrees to issue up to 363,636 additional shares of the
Company's common stock, par value $.01 per share ("Common Stock"), in
connection with the settlement in full of the claims by the HVE
Stockholders.
(b) Irwin hereby assumes all of the Company's obligations to issue
additional shares of Common Stock under the Employment Agreement with
Mandel from his own and his wife's, Margareth Irwin ("Mrs. Irwin"),
shares of Common Stock to enable the Company to fulfill its obligation to
Mandel under his Employment Agreement.
2.2 OTHER COSTS AND EXPENSES AND LIABILITIES. Irwin hereby agrees to
reimburse the Company for all amounts distributed to him since October
13, 1997 (other than for amounts distributed to Irwin in respect of his
regular salary, Company expense reimbursement in accordance with Company
policy, or other regular business expenses or benefits that may have been
paid to Irwin in accordance with regular Company policy since such date),
in excess of his income tax liability attributable to all periods prior
to the merger of Irwin Naturals with and into 4Health, Inc., as
determined by Arthur Andersen LLP, whose determination shall be final and
binding on the parties hereto.
3. SPIN-OFF OF HEALTHZONE. (a) Subject to compliance with all applicable
laws, as soon as practicable upon receipt of an acceptable tax opinion
from a nationally recognized accounting firm designated by Irwin, the
Company and Irwin (in his capacity as a principal shareholder and
director of the Company) will use their best efforts to distribute to the
Company's stockholders on a pro-rata basis as a tax-free stock dividend
under Section 355 of the Internal Revenue Code of 1986, as amended (the
"Code") or any successor provision thereto, 100% of the issued and
outstanding shares of voting capital
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stock of HealthZone registered in the Company's name (the "Spin-Off");
provided that no suit, action, governmental investigation, or other legal
or administrative proceeding is pending or threatened which seeks to
enjoin, delay or otherwise impair the Company's ability to effect the
Spin-Off as contemplated hereby.
(b) Any tax liability arising from a disallowance by the Internal Revenue
Service of the Spin-Off as a tax-free distribution under Section 355 of
the Code or any successor provision thereto shall be allocated to and
borne by HealthZone which shall indemnify and hold the Company harmless
from any such tax liability pursuant to the terms and conditions of a Tax
Allocation and Indemnification Agreement in substantially the form of
Exhibit A attached hereto and made a part hereof to be executed and
delivered by HealthZone, Irwin and the Company contemporaneously
herewith.
(c) Commencing forty-five (45) days after the date hereof (the "Funding
Termination Date"), Irwin agrees to assume and fund all net operating costs and
expenses (determined in accordance with GAAP) attributable to all HealthZone
operations (other than the payment of his salary and the costs of immediate
family health insurance coverage to be provided by the Company). Until the
expiration of such forty five (45) day period, however, the Company shall
continue to advance funds to HealthZone to maintain its operations at current
levels (but not in excess of $75,000 in the aggregate); provided, however,
thereafter, the Company shall be under no further obligation to advance any
funds to maintain HealthZone operations nor shall it be liable directly or
indirectly for any HealthZone obligations. Any funds advanced by the Company
during such initial forty-five day period shall be repaid within thirty days of
the closing of said forty-five day period. Each such advance by the Company
shall be evidenced by a promissory note issued by HealthZone (a "Note") in the
principal amount of the advance, maturing thirty days after the close of the
said forty-five day period and bearing interest at the same rate of interest
being charged the Company on the date of each such advance for outstanding loans
under its Secured Credit Agreement with First Source Financial, Inc., (or other
principal lender to the Company) as amended from time to time. The principal
amount of each Note may be prepaid at any time and from time to time in whole or
in part, together with all accrued interest to the date of prepayment, in a
minimum amount of $5,000 or multiples thereof without premium or penalty. Each
Note shall be endorsed and its payment unconditionally guaranteed by Irwin. Any
capital provided to HealthZone by Irwin directly or otherwise pursuant to this
Section 3(c) shall be provided by way of the purchase of shares of HealthZone
common stock on a basis that values HealthZone at not less than $3,500,000
dollars (the "HZ Base Value") for any initial purchase of shares and thereafter
at the greater of HZ Base Value (as adjusted as provided below) or the
HealthZone Market Value (as defined in Section 3(d) below); provided, however,
until the HZ Base Value is required to be adjusted as hereinafter provided, all
such purchases shall be made at the HZ Base Value. Prior to any sale of the
HealthZone common stock, HealthZone shall obtain a determination of the HZ Base
Value and the HealthZone Market Value. Accordingly, Irwin (or any such other
HealthZone common stock purchaser) shall acquire no more of the percentage of
the total issued and outstanding shares of HealthZone common stock as the ratio
(expressed as a percentage) of the net proceeds from such purchase of HealthZone
common stock received by HealthZone (net of all offering and issuance costs of
such shares of HealthZone common stock) bears to the HZ Base Value (as
adjusted) or the HealthZone Market Value (as the case may be).
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The HZ Base Value shall remain at $3,500,000 and shall not be adjusted until
HealthZone has received an aggregate of $280,000 in net proceeds from the
sale of its common stock. Thereafter, upon the next sale of its common stock
the HZ Base Value shall be increased by $280,000 and by the amount of the net
proceeds of such sale and each time thereafter that HealthZone issues common
stock as contemplated hereby the net proceeds of such sale shall be added to
the HZ Base Value. The capital to be provided to HealthZone pursuant to the
provisions of this Agreement may be provided in the form of stock, cash or
other property; provided, however, that if such capital shall be in any form
other than cash it shall have a readily ascertainable value, it shall be
saleable without restriction (other than for any restrictions under any
applicable securities laws) and shall be valued at its then fair market value
as determined by an independent appraisal rendered by a third party appraiser
mutually agreeable to Irwin and the Company; provided, further, however, that
if such stok consists of shares of Common Stock then it shall be valued at
the Current Market Price (as hereinafter defined in Section 6(d)) of the
Common Stock on the effective date of any such transfer to HealthZone.
Immediately after the date hereof and until the earlier of (i) the Spin-Off,
or (ii) such date on which the Company ceases to own a majority of the voting
capital stock of HealthZone (the "Control Termination Date"), the Board of
Directors shall be comprised of two directors, one being the Chairman of the
Board of Directors of the Company and the other being Irwin, and Irwin agrees
that without the prior unanimous written consent of the Board of Directors of
HealthZone he shall not engage in any of the activities enumerated on Exhibit
B attached hereto during period from the date hereof until the Control
Termination Date and he shall be dismissed as Chief Executive Officer of
HealthZone in the event he breaches any such restrictions in compliance with
the provisions of Exhibit B attached hereto. The Chairman of the Board of the
Company shall tender his resignation from the HealthZone Board of Directors
effective upon the Control Termination Date. After the Control Termination
Date and for a period of six years thereafter, Irwin agrees not to cause
HealthZone to amend or otherwise limit the officer and director
indemnification and exculpation provisions of the HealthZone Charter and
Bylaws and agrees to secure and to continue in effect all policies of
director and officer liability insurance, the provisions of which shall
extend to cover the Chairman of the Board of the Company in his capacity as a
director of HealthZone, in order that the Chairman of the Board of the
Company shall not forfeit his rights to any such indemnification, exculpation
or insurance coverage.
(d) Concurrently with the execution and delivery of this Agreement, Irwin
agrees to execute and deliver and to cause his wife to execute and
deliver an Escrow Agreement in the form of Exhibit C attached hereto (the
"Escrow Agreement") and concurrently with the filing by the Company with
the Securities and Exchange Commission of a registration statement on
Form 10 (or other applicable Form) relating to the Spin-Off, Irwin shall
deposit with the escrow agent named therein (the "Escrow Agent") one or
more certificates registered in his or his and Mrs. Irwin's joint name,
free and clear of all liens, charges and encumbrances, together with
appropriate stock powers executed in blank with medallion signature
guarantees affixed thereto, representing one million twenty two thousand
two hundred twenty two (1,022,222) shares of Common Stock, each valued
for purposes of this Agreement at $2.25 (the "Spin-Off Guarantee
Shares"). If the HealthZone Market Value is less than two million three
hundred thousand dollars ($2,300,000) on the earlier to occur of (i) the
first anniversary of the Spin-Off or (ii) the
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second anniversary of the date hereof, then the Escrow Agent shall
deliver to the Company that number of Spin-Off Guarantee shares as
shall equal the difference in value between $2,300,000 and the
HealthZone Market Value determined on such dates. Any Spin-Off
Guarantee Shares so delivered by the Escrow Agent to the Company
shall be valued at the greater of (i) their then Current Market
Price or (ii) $2.25 per share.
(i) If at any time after the Spin-Off but prior to the
exercise of the Company's "put" referred to in
Section 3(d)(ii), the HealthZone Market Value shall
be equal to or more than $2,300,000, then the
Spin-Off Guarantee Shares shall be immediately
returned to Irwin; provided that the shares of
HealthZone Common Stock registered in the name of
the Company or its nominee or its stockholders on
the record date for the Spin-Off ("Company
Stockholders") shall be registered under the
Securities Act of 1933, as amended, (or exempt
from such registration) and shall be freely
transferable without restriction of any kind by
each Company Stockholder (other than Irwin or any
other affiliate of HealthZone) immediately prior
to any such release of such Shares to Irwin.
(ii) If, for any reason, neither the Spin-Off nor the
sale of the shares of HealthZone registered in
the Company's name for at least two million three
hundred thousand dollars ($2,300,000) is effected
on or prior to June 1, 2000, then the Company
shall have the option to sell and Irwin shall be
obligated to buy (the "Put Option") all (but not
part) of its shares of HealthZone common stock to
Irwin in consideration of the delivery to the
Company, at Irwin's election of either $2.3
million in cash in immediately available funds
wire transferred for deposit in an account
designated in writing to Irwin by the Company or
Spin-Off Guarantee Shares valued at the greater
of (i) $2.25 per share or (ii) the then Current
Market Price per share for such Shares. In order
to exercise its Put Option, the Company shall
deliver a written notice of exercise (the "Put
Exercise Notice") to Irwin and the Escrow Agent
at least five (5) business days prior to the
closing date designated in such Notice for the
exercise of its Option. Within three (3)
business days after receipt of the Put Exercise
Notice Irwin shall notify the Company and the
Escrow Agent in writing as to his election
whether to pay the exercise price in cash in
immediately available funds or in shares of
Common Stock. The closing under the Put Option
shall take place at the Company's offices (or
such other place as the parties may mutually
agree) on the closing date specified in the Put
Exercise Notice at a time to be mutually agreed
upon.
(iii) If, the Spin-Off is not effected by March 31, 2000
for any reason whatsoever, then Irwin shall have the
right to purchase and the Company shall be obligated
to sell (a "Call Option") all (but not a part) of
the shares of HealthZone registered in the Company's
name for a purchase price equal to the greater of
$2.3 million or the HealthZone Market Value as of
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the date of the Call Exercise Notice (as hereinafter
defined). In order to exercise his Call Option,
Irwin shall deliver a written notice of exercise
(the "Call Exercise Notice") to the Company and the
Escrow Agent at least five (5) business days prior
to the closing date designated in such Notice for
the exercise of his Option. The Call Exercise
Notice Irwin shall also notify the Company and the
Escrow Agent as to Irwin's election whether to pay
the exercise price in cash in immediately available
funds or in shares of Common Stock. The Call
Exercise Notice shall specify the exercise price and
shall be accompanied by a determination of the
HealthZone Market Value. The closing under the Call
Option shall take place at the Company's offices (or
any such other place as the parties may mutually
agree) on the closing date specified in the Call
Exercise Notice at a time to be mutually agreed
upon. The consideration for HealthZone shares to be
purchased upon exercise of the Call Option may be
payable at Irwin's election in either cash in
immediately available funds wire transferred for
deposit in an account designated in writing to Irwin
by the Company or Spin-Off Guarantee Shares valued
at the greater of $2.25 per share or their then
Current Market Price per share; provided, that, the
aggregate value of the Spin-Off Guarantee Shares
shall not be less than the greater of $2.3 million
or the then HealthZone Market Value.
As used in this Section 3(d) the term "HealthZone Market Value" shall
mean the aggregate market value of the issued and outstanding securities
of HealthZone registered in the name of the Company or the Company's
nominee or the Company's Stockholders determined based upon the average
of the daily closing "bid" prices for the twenty (20) consecutive trading
days ending on the last full trading day on the exchange or market
specified in the second succeeding sentence prior to the Time of
Determination (as defined below), or as otherwise provided in the third
succeeding sentence. The term "Time of Determination" as used herein
shall be the time and date as of which the HealthZone Market Value is to
be computed. The closing "bid" price for any day shall be the last
reported sale price regular way or, in case no such reported sale takes
place on such day, the closing bid prices regular way for such day, or if
no closing bid prices are reported the average of the bid and asked
prices for such day, in each case (1) on the principal national
securities exchange on which shares of HealthZone common stock are listed
or to which such shares are admitted to trading or (2) if the HealthZone
common stock is not listed or admitted to trading on a national
securities exchange, in the over-the-counter market as reported on the
NASDAQ National Market System ("NASDAQ NMS") or any comparable system or
(3) if the HealthZone common stock is not listed on the NASDAQ NMS or a
comparable system, on the NASDAQ Bulletin Board or (4) if the HealthZone
common stock is not listed on the NASDAQ Bulletin Board, as furnished by
two members of the National Association of Securities Dealers, Inc.
selected from time to time in good faith by the Company and by Irwin for
that purpose. Notwithstanding anything in the foregoing to the contrary,
if, at the Time of Determination, no public market for the HealthZone
common stock exists, then for the purposes of determining the HealthZone
Market Value, Adams, Harkness & Hill shall make such determination after
first consulting with the Company and Irwin and its decision shall be
final and binding upon the parties hereto.
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(e) The Company and Irwin agree that the Company will bear the first
$100,000 in expenses incurred by the Company attributable to the Spin-Off
(which shall not be reimbursable by HealthZone or Irwin pursuant to the
provisions of Section 3(c) hereof) and HealthZone shall bear all
documented and reasonable costs and expenses incurred by the Company in
excess of such $100,000 ("Excess Costs"), which the Company will advance
on HealthZone's behalf. The amount of all Excess Costs advanced by the
Company shall be evidenced by one or more promissory notes issued by
HealthZone (collectively, the "Excess Costs Notes") each in the
principal amount of each advance, maturing thirty days after the date of
each advance and bearing interest at the same rate of interest being
charged the Company on the date of each such advance for outstanding
loans under its Secured Credit Agreement with First Source Financial,
Inc., (or other principal lender to the Company) as amended from time to
time. The principal amount of each Excess Costs Note may be prepaid at
any time and from time to time in whole or in part, together with all
accrued interest to the date of prepayment, in a minimum amount of $5,000
or multiples thereof without premium or penalty. Each Excess Costs Note
shall be endorsed and its payment unconditionally guaranteed by Irwin.
Failure to pay the Excess Costs Notes or the Notes referred to in Section
3(c) when due shall not be deemed a breach of this Agreement unless the
aggregate amount of all such unpaid Notes equals or exceeds $350,000,
such Notes being deemed independent obligations of HealthZone and Irwin
as their guarantor; provided, however, nothing in this Agreement or the
foregoing shall prevent the Company from commencing a legal proceeding to
enforce payment of any overdue Note or any guarantee thereof.
(f) During the time that any shares of Common Stock deposited with the
Escrow Agent by Irwin may be so held, Irwin shall maintain all his rights
to receive dividends (either cash or stock) and, subject to the
provisions of that certain Voting Agreement of even date herewith among
R. Lindsey Duncan, Irwin and his wife, all his and his wife's voting
rights, with regard to such deposited shares.
(g) In the event that the Company is sold, then all shares of Common
Stock deposited with the Escrow Agent by Irwin (except for the shares for
which the Escrow Agent has received a Notice pursuant to the Escrow
Agreement) shall be immediately returned to Irwin.
(h) Irwin shall have the right to prepare and issue press releases on
behalf of HealthZone updating the status of HealthZone, relating to and
announcing the Spin-Off, and such other matters as may relate to the
business of HealthZone, subject to the prior receipt of written approval
by the Chairman of the Board of the Company and review and approval by
Company counsel, which approvals shall not be unreasonably withheld.
4. IRWIN COVENANTS. Irwin hereby covenants to and agrees with the Company
as follows:
(a) He will cooperate, at his expense, with the Company and its auditors
and counsel in connection with any claim, action, suit, investigation or
other proceeding asserted or commenced by any court, governmental agency
or body or other third party relating to any of the matters which
comprise this Agreement or any other matters related or attributable to
Irwin's management of the affairs of the Company or his ownership of
Common Stock; including, without limitation, making himself available
during normal business hours to meet with and respond to questions of
representatives of the Company and others, including, without limitation,
the Company's auditors and counsel; and
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preserving and making available to the Company and its counsel copies of
all personal correspondence, memoranda, files, agreements or other
documents (whether in written or electronic form) in his possession or
control which in any way relate to his management of the Company's
affairs, the performance of his duties and the ownership of his shares
of Common Stock, and, in connection therewith, Irwin hereby waives any
right to assert the attorney-client privilege, as to any Company
attorneys, in respect of any such correspondence, memoranda, files,
agreements or other documents to the extent any such correspondence,
memoranda, files, agreements or other documents will assist the
Company in the defense of any such claim, action, suit, investigation
or other proceeding.
(b) Prior to communicating orally, in writing or by electronic means, to
other shareholders, investment bankers, brokers, finders, investment
advisors, representatives of financial institutions or other financial
intermediaries, members of the press or other public media, or any other
third parties (other than family members and legal advisors) concerning
any matter relating to this Agreement, the Company and its affairs and
its management, he will consult with the Chairman of Board or the Chief
Executive Officer of the Company, and, until the sale of HealthZone or
the Spin-Off is consummated, with the Board of Directors of HealthZone
concerning any matter relating to HealthZone and its affairs and
management unless required so to communicate by subpoena or other legal
order; provided that Irwin shall comply with all applicable securities
laws, rules and regulations in connection with all such communications
and shall promptly notify the Company and the Board of HealthZone, as the
case may be, in the event he receives any such subpoenas or other legal
orders. Notwithstanding anything to the contrary herein provided, the
provisions of Section 5(a) of the Employment Agreement are incorporated
by reference herein as if fully set forth herein. Irwin agrees not to
make any statements (whether orally, in writing or in electronic form) in
any manner disparaging the reputation of the Company, its products, its
directors, or its management.
(c) The provisions of Sections 5(b), 5(c), 5(d), 5(e), 5(f) and 5(g) of
the Employment Agreement are incorporated by reference as if they were stated in
full herein; provided, however, that for purposes of Sections 5(e) and (f), none
of HealthZone, Cobe Inc., a California corporation with offices at 8616 Slauson
Avenue, Pico Rivera, CA 90660 and the business of AromaVera Inc., a New York
corporation shall be deemed to constitute a "Competing Business" so long as
neither Cobe Inc. nor the business of AromaVera engages in the manufacture,
marketing or sale of nutritional supplements or products that compete with
products that are currently sold by the Company, and the restrictions of
Sections 5(e), 5(f) and 5(g) shall lapse on April 16, 2000; provided, further,
that the "Term of the Agreement" as used in Section 5(c) means the period ending
on April 20,1999.
5. RELEASE. (a) For and in consideration of the sum of $10.00 and other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged and confirmed, each of the parties hereto and their
respective heirs, legal representatives, successors in interest and
assigns (collectively, the "Releasor") hereby releases and forever
discharges the other party hereto and its, his or its heirs, legal
representatives, agents, attorneys, directors, officers, shareholders,
successors, and assigns (collectively, the "Releasee") of and from any
and all actions, causes of action, claims, charges, demands, remedies,
obligations, liabilities, losses, damages, penalties, assessments,
diminution of value, costs and expenses (including reasonable attorney's
fees and
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expenses), known or unknown, foreseeable or unforeseeable,
present or contingent, arising at law or in equity (collectively,
"Claims") which the Releasor has or may in the future have against the
Releasee in any manner on account of any matter, cause or thing arising
prior to the date of this Agreement, including, without limitation,
Claims arising under Irwin's Employment Agreement. This Agreement shall
not be construed more strictly against either the Releasee or the
Releasor merely by virtue of the fact that the same has been prepared by
the Releasee or the Releasor or their respective counsel, it being
recognized that the Releasor and the Releasee have contributed
substantially and materially to the preparation of this instrument. THE
RELEASOR ACKNOWLEDGES THAT HE AND IT HAS THOROUGHLY READ AND REVIEWED THE
TERMS AND PROVISIONS OF THIS AGREEMENT AND IS FAMILIAR WITH SAME, THAT
THE TERMS AND PROVISIONS CONTAINED HEREIN ARE CLEARLY UNDERSTOOD BY HIM
AND IT AND HAVE BEEN FULLY AND UNCONDITIONALLY CONSENTED TO BY HIM AND
IT, AND THAT HE AND IT HAS HAD FULL BENEFIT ADVICE OF COUNSEL OF HIS AND
ITS OWN SELECTION IN REGARD TO UNDERSTANDING THE TERMS, MEANING AND
EFFECT OF THIS AGREEMENT.
(b) The parties hereto hereby expressly waive and relinquish all rights
and benefits that they may hold against each other, afforded by Section
1542 of the Civil Code of California or any other state laws, and they
expressly understand and acknowledge the significance and consequences of
such specific waiver of Section 1542, which provides:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH
THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN
HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE,
WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED
HIS SETTLEMENT WITH THE DEBTOR."
Thus, notwithstanding the provisions of Section 1542, and for the purpose
of implementing a full and complete release and discharge of all their
claims, the parties expressly acknowledge that this Agreement is also
intended to include in its effect, without limitation, all claims which
they do not know or expect to exist in their favor, that the Company may
hold against Irwin, or that Irwin may hold against the Company, at the
time of execution hereof, and that this Agreement contemplates the
extinguishment of any such claim or claims. The parties hereto
understand and agree that this is a waiver of rights and benefits that
they may hold against each other under Section 1542, and that this is a
material term of this Agreement, without which the parties hereto would
not have given the consideration to each other stated herein.
6. INDEMNIFICATION. (a) Irwin, his heirs, legal representatives and assigns
(collectively, the "Irwin Indemnifying Party") shall indemnify and
hold the Company, its officers, directors, shareholders, agents,
attorneys and assigns (collectively, the "Company Indemnified Party")
harmless (except as limited herein) from and against any and all
uninsured losses, obligations, deficiencies, liabilities, claims,
damages, fines, penalties, costs and expenses including, without
limitation, the amount of any settlement entered into pursuant hereto,
and all reasonable legal and other expenses incurred in connection
with the investigation, prosecution or defense of any matter
indemnified pursuant hereto (a "Loss") which Loss the Company
Indemnified Party may sustain, suffer or incur and
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which arises out of, is caused by, relates to, or results or occurs
from, or in connection with a claim asserted by one or more
stockholders of the Company arising out of or related to (i) an
alleged breach by Irwin of a fiduciary duty owed to the Company or its
stockholders or (ii) the management of the Company's business by Irwin
while Chief Executive Officer or (iii) any public announcement or
other public or private communications with Company shareholders,
prospective investors in the Company and representatives of financial
institutions or intermediaries by Irwin or the Company while Irwin was
its Chief Executive Officer (regardless of whether any claim is
brought prior to or subsequent to the date hereof); provided, however,
the Irwin Indemnifying Party's liability under this Section 6(a) shall
be limited solely to and shall be paid from the amount of
Indemnification Shares (as hereinafter defined) deposited with the
Escrow Agent.
(b) Each of the parties hereto and their respective heirs, legal
representatives, successors, and assigns (the "Party of the First Part")
hereby agrees to indemnify and hold the other party and its heirs, legal
representatives, successors and assigns (the "Party of the Second Part")
harmless from any and all Losses incurred by the Party of the Second Part
arising out of, connected with or which may be attributable to a breach
of any representation, warranty, agreement or covenant made by the Party
of the First Part in this Agreement or in any agreement or instrument
executed and delivered pursuant hereto.
(c) In the event of an alleged breach of this Agreement by either party
hereto or if a claim by a third party is made against any individual,
entity or other person entitled to indemnification under this Section 6,
and the non-breaching party or the party or parties against whom said
claim is made intends to seek indemnification with respect thereto under
this Section 6, the party or parties seeking such indemnification
(individually, the "Indemnified Party") shall promptly notify the party
from whom indemnification pursuant to this Section 6 is claimed (the
"Indemnifying Party"), in writing, of such claim; provided, however, that
the failure to give such notice shall not affect the rights of the
Indemnified Party hereunder unless such failure materially and adversely
affects the Indemnifying Party. With respect to third party claims, the
Indemnifying Party shall have ten (10) days after said notice is given to
elect, by written notice given to the Indemnified Party, to undertake,
conduct and control, through counsel of its own choosing (subject to the
consent of the Indemnified Party, such consent not to be unreasonably
withheld) and at its sole risk and expense, provided that the
Indemnifying Party shall be entitled to claim reimbursement for such
expenses under the Company's insurance policies, subject to any
limitations set forth therein, the good faith settlement or defense of
such claim, and the Indemnified Party shall cooperate with the
Indemnifying Party in connection therewith; provided, however, that the
Indemnifying Party shall not, without (i) the prior written consent of
the Indemnified Party, settle, compromise or offer to settle or
compromise any such claim on a basis which would result in the imposition
of a consent order, injunction or decree which would restrict the future
activity or conduct of the Indemnified Party or any subsidiary or
affiliate thereof and (ii) obtaining an unconditional release of all
Indemnified Parties with respect to such claim. The Indemnified Party
shall be entitled to participate in such settlement or defense through
counsel chosen by the Indemnified Party, provided that the fees and
expenses of such counsel shall be borne by the Indemnified Party. So
long as the Indemnifying Party is contesting any such claim in good
faith, the Indemnified Party shall not pay or settle any such claim;
provided, however, that notwithstanding the foregoing, the Indemnified
Party shall have the right to pay or settle any such claim at any time,
provided that in such event it shall waive any right of indemnification
therefor by the Indemnifying Party. If
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the Indemnifying Party does not make a timely election to undertake
the good faith defense or settlement of the claim as aforesaid, or if
the Indemnifying Party fails to proceed with the good faith defense or
settlement of the matter after making such election, then, in either
such event, the Indemnified Party, after written notice to the
Indemnifying Party, shall have the right to contest, settle or
compromise the claim at its exclusive discretion, at the risk and
expense of the Indemnifying Party to the full extent set forth in this
Section 6. Notwithstanding anything to the contrary contained in this
Section 6(c), Irwin's liability for damages attributable to any claim
for indemnification made pursuant to Section 6(a) hereof shall be
limited to the value of the shares described and held in escrow
pursuant to Section 6(d) hereof.
(d) As collateral security for his indemnification obligations (but
only with respect to uninsured Losses) set forth in this Section 6,
concurrently with the execution and delivery of this Agreement Irwin
shall deposit with the Escrow Agent one or more certificates
registered in his or his and Mrs. Irwin's joint name, free and clear
of all liens, charges and encumbrances, together with appropriate
stock powers executed in blank with medallion signature guarantees
affixed thereto, representing one million (1,000,000) shares of Common
Stock (the "Indemnification Shares") to be held and delivered to the
Company by the Escrow Agent upon presentation to the Escrow Agent
(with a copy to Irwin) of a notice of claim ("Notice") which specifies
the amount and nature of the finally determined Loss for which
indemnification is claimed pursuant to Section 6(a) hereof and a
demand for the delivery of that number of Indemnification Shares as
shall equal the quotient of the amount of such finally determined Loss
divided by the greater of (i) $2.25 or (ii) the Current Market Price
of the Company's Common Stock as of the date of the Notice and such
Indemnification Shares will then be delivered to the Company in
accordance with the provisions of the Escrow Agreement; provided,
however, if no Notice has been delivered to Irwin on or prior to
December 31, 1999, five hundred thousand (500,000) shares of Common
Stock shall be released from escrow and delivered to Irwin, and if no
such Notice has been delivered to Irwin by March 31, 2000 the
remainder of the Indemnification Shares shall be released from escrow
and delivered to Irwin, in accordance, in each case, with the
provisions of the Escrow Agreement. As used herein, the term "Current
Market Price" shall mean the average of the daily closing "bid" prices
for the twenty (20) consecutive trading days ending on the last full
trading day on the exchange or market specified in the second
succeeding sentence prior to the date of the Notice, or as otherwise
provided in the third succeeding sentence. The closing "bid" price for
any day shall be the last reported sale price regular way or, in case
no such reported sale takes place on such day, the closing bid prices
regular way for such day, or if no closing bid prices are reported the
average of the bid and asked prices for such day, in each case (1) on
the principal national securities exchange on which shares of Common
Stock are listed or to which such shares are admitted to trading or
(2) if the Common Stock is not listed or admitted to trading on a
national securities exchange, in the over-the-counter market as
reported on the NASDAQ NMS or any comparable system or (3) if the
Common Stock is not listed on the NASDAQ NMS or a comparable system,
on the NASDAQ Bulletin Board or (4) if the Common Stock is not listed
on the NASDAQ Bulletin Board, as furnished by two members of the
National Association of Securities Dealers, Inc. selected from time to
time in good faith by the Company and by Irwin for that purpose.
Notwithstanding anything in the foregoing to the contrary, if, on the
date of the Notice, no public market for the Common Stock exists, then
for the purposes of determining the Current Market Price, Adams
Harkness & Hill shall make such determination after first consulting
with the Company and Irwin and its decision shall be final and binding
upon the parties hereto.
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7. MISCELLANEOUS.
7.1 ADDITIONAL UNDERTAKINGS. (a) Irwin shall have the right to draft
a press release describing the terms of this Agreement which shall be
publicly released subject to the prior approval by Company counsel and
the Company's Board of Directors.
(b) Each of the Company, on the one hand, and Irwin and Mrs. Irwin, on
the other hand, hereby agrees that it or they shall not initiate or
assist in the prosecution of any action, suit or other legal proceeding
against the other party hereto (other than in connection with any breach
of this Agreement by such other party or to enforce any agreement or
covenant by such other party set forth herein).
(c) The Company agrees to duly convene a special meeting in lieu of
annual meeting of stockholders as soon as possible after the date hereof.
7.2 EXPENSES. Except as otherwise provided in this Agreement, each of
the parties hereto agrees to pay his and its own costs and expenses, including,
without limitation, all reasonable attorneys fees and expenses, incurred in
connection with the negotiation, preparation, execution, delivery and
performance of this Agreement and the transactions contemplated hereby.
7.3 NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given or
made as of the date delivered, if delivered personally, or one (1) day (which is
not a Saturday, Sunday, holiday or day on which commercial banks in Culver City,
CA are required or permitted to close (a "Business Day")) after having been
deposited with a courier, if sent by overnight courier or having been sent by
telecopy, if sent by telecopy (receipt confirmed), or three (3) Business Days
after having been mailed, if mailed by registered or certified mail, postage
prepaid, return receipt requested, as follows:
If to The Company, to: Omni Nutraceuticals, Inc.
5310 Beethoven Avenue
Los Angeles, CA 90066
Attn: Chairman of the Board
Copy to: Satterlee Stephens Burke & Burke LLP
230 Park Avenue
New York, NY 10169
Attn: Peter A. Basilevsky, Esq.
If to Irwin or Mrs. Irwin, to Irwin's address first above written, or to such
other address, as any party shall have designated by like notice to the other
parties hereto (except that a notice of change of address shall only be
effective upon receipt).
7.4 APPLICABLE LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Utah without regard to its choice
of law principles.
7.5 WAIVERS, ETC. The failure of any of the parties hereto at any
time to enforce any of the provisions of this Agreement shall not be deemed or
construed to be a waiver of any such provision, nor in any way to affect the
validity of this Agreement or any provision hereof or the
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<PAGE>
right of any of the parties hereto to thereafter enforce each and every
provision of this Agreement. No waiver of any breach of any of the provisions
Agreement shall be effective unless set forth in an instrument executed by
the party or parties against whom enforcement of such waiver is sought; and
no waiver or breach shall be construed or deemed to be a waiver of any other
or subsequent breach.
7.6 ASSIGNMENT. Neither this Agreement nor any rights, interests or
obligations hereunder may be assigned (by operation of law or otherwise) by any
party hereto without the prior written consent of all of the parties hereto,
except that the Company may (a) assign any and all of its rights and remedies
and delegate any and all of its obligations under this Agreement to any
affiliate, subsidiary or any entity owned or controlled by it, provided such
affiliate, subsidiary or entity agrees in writing to be bound by the terms
hereof, and (b) grant a security interest in its rights under this Agreement to
the Company's lender.
7.7 BINDING EFFECT; BENEFITS. This Agreement shall inure to the
benefit of, and shall be binding upon, the parties hereto and their respective
successors and permitted assigns. Nothing herein contained, express or implied,
is intended to confer upon any person other than the parties hereto and their
respective successors and permitted assigns, any rights or remedies under or by
reason of this Agreement.
7.8 AMENDMENT. This Agreement may only be amended by a written
instrument executed by each of the parties hereto; provided, however, that any
consent to any amendment of this Agreement by the Company shall require the
approval of at least a majority of the directors (which must include the
Chairman of the Board).
7.9 SEVERABILITY. Any provision of this Agreement which is held by a
court of competent jurisdiction to be prohibited or unenforceable in any
jurisdiction(s) shall be, as to such jurisdiction(s), ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of such
provision in any other jurisdiction.
7.10 ENTIRE AGREEMENT. This Agreement (together with the other
agreements and documents being delivered pursuant to or in connection with this
Agreement) constitutes the entire agreement of the parties hereto with respect
to the subject matter hereof, and supersedes all prior agreements and
understandings of the parties, oral and written, with respect to the subject
matter hereof, including, without limitation, that certain Letter Agreement
dated April 19, 1999 by and between the Company and Irwin.
7.11 HEADINGS. The headings contained herein are for the sole purpose
of convenience of reference, and shall not in any way limit or affect the
meaning or interpretation of any of the terms or provisions of this Agreement.
7.12 EXECUTION IN COUNTERPARTS. This Agreement may be executed in one
or more counterparts, and by the different parties hereto in separate
counterparts, each of which shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement, and shall become
effective when one or more counterparts has been signed by each of the parties
hereto and delivered to each of the other parties hereto.
7.13 FURTHER ASSURANCES. Irwin hereby agrees, at his sole cost and
expense, to execute and deliver, and to cause Mrs. Irwin to execute and deliver
to the Company all such further
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agreements, instruments or other documents as the Company may reasonably
request in order to implement the provisions of this Agreement. The Company
agrees, for its part, and its sole cost and expense, to execute and deliver
to Irwin all such further agreements, instruments or other documents as Irwin
may reasonably request in order to implement the provisions of this Agreement.
7.14 SPECIFIC PERFORMANCE. The parties hereby acknowledge and agree
that the failure of Irwin and/or the Company to perform their respective
agreements and covenants hereunder will cause irreparable injury for which
damages, even if available, will not be an adequate remedy. Accordingly, Irwin
and the Company each hereby consent to the issuance of injunctive relief by any
court of competent jurisdiction to compel performance of such party's
obligations and to the granting by any court of the remedy of specific
performance of his or its obligations hereunder and in connection therewith
Irwin and/or the Company each hereby waive any right to require any bond or
other security to be paid or furnished by Irwin and/or the Company in connection
with any application for such relief.
7.15 BOARD APPROVAL. This Agreement shall become effective upon
approval or ratification by the Company's Board of Directors; provided, however,
Irwin agrees not to vote against any such approval.
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IN WITNESS WHEREOF, the Company, by its representative thereunto duly
authorized, and Irwin have each executed this Agreement effective as of the date
first above written.
OMNI NUTRACEUTICALS, INC.
By: /s/ R. Lindsey Duncan
-------------------------------
R. Lindsey Duncan
Chairman of the Board
/s/ Klee Irwin
-------------------------------
Klee Irwin
The undersigned, Margareth Irwin, hereby consents to and agrees to be
bound by the foregoing.
/s/ Margareth Irwin
-------------------------------
Margareth Irwin
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EXHIBIT 10.14
EXECUTION COPY
TAX INDEMNIFICATION AND ALLOCATION AGREEMENT
This Agreement, dated as of October 8, 1999, is entered into by and among
Omni Nutraceuticals, Inc., a Utah corporation ("Omni"), HealthZone.com, a
California corporation ("Healthzone") and Klee Irwin, an individual residing at
7825 Veragua Drive, Playa del Rey, CA 90292 ("Irwin").
RECITALS
1. Omni and HealthZone will elect to join in filing consolidated
federal income tax returns under the Internal Revenue Code of
1986, as amended (the "Code"), and the applicable Treasury
Regulations promulgated thereunder by the Treasury Department (the
"Regulations") and will elect to join in filing certain
consolidated state income tax returns.
2. As a result of the transactions contemplated by the Settlement
Agreement dated as of October __, 1999 between Omni and Irwin,
Omni intends to distribute all of its stock in HealthZone to the
shareholders of Omni in a transaction intended to qualify for
tax-free treatment under Section 355 of the Code (hereinafter
referred to as the "Spin-Off"), and HealthZone will therefore
leave the affiliated group (within the meaning of Section 1504(a)
of the Code) of corporations (the "Omni Group") of which Omni is
the common parent. The date of such separation is hereinafter
referred to as the "Closing Date".
3. The parties hereto desire to allocate their consolidated federal
and state income tax liability between themselves for the fiscal
year ending December 31, 1999 and, if different, the taxable year
in which the Closing Date occurs (the "Spin-Off Tax Year").
4. HealthZone agrees to compensate Omni for certain federal and state
income tax deficiencies (plus interest and penalties) paid by Omni
as a result of audits of the Internal Revenue Service (the
"Service") and other taxing authorities and judicial
determinations, if any, in respect of which the parties filed
consolidated federal and state income tax returns (consolidated
return deficiencies and refunds) and to compensate Omni for any
taxes (plus interest and penalties) or other damages resulting
from any failure of the Spin-Off to qualify as a tax-free
distribution under Section 355 of the Code.
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AGREEMENT
Now, therefore, the parties hereto agree as follows:
1. (a) In determining the allocation between and Omni and
HealthZone of the consolidated Federal and state income tax
liability of the Omni Group for the fiscal year ending
December 31, 1999 (the "1999 Tax Year") and for the
Spin-Off Tax Year, if different, the computations of the
tax liability of Omni Group shall be made in accordance
with the method used in the consolidated return that
includes Omni and HealthZone for the 1999 Tax Year, except
as to the method used to compute any pension plan
deduction and except where a change in method is required
under applicable tax law (the "Tax Sharing Agreement").
The method of allocation under the Tax Sharing Agreement
is the method described in Section 1552(a)(2) of the Code
and Section related Sections of the Regulations; provided,
however, in the event that HealthZone incurs tax attributes
during the consolidated period and such tax attributes were
funded by Omni, then Omni is entitled to the utilization of
such tax attributes as provided by the Code and related
Regulations and is not required to reimburse HealthZone for
the use of such tax attributes. This method will be elected
and requested by the Omni Group in when it files its
consolidated income tax return for the 1999 Tax Year. The
tax liability of HealthZone so determined is hereinafter
referred to as the HealthZone Tax Liability.
(b) Not later than March 15, 2000 with respect to the 1999 Tax
Year or March 15 of the calendar year immediately
succeeding the Spin-Off Tax Year, HealthZone shall pay in
federal or immediately available funds to such bank account
as shall be designated by Omni an amount equal to the
HealthZone Tax Liability less the amount actually paid (or
considered to have been paid through intercompany account
entries) by HealthZone to Omni on account of estimated tax
installment payments for the applicable period. To the
extent the actual tax liability allocable to HealthZone
ultimately differs from the amounts paid by the HealthZone,
any excess shall be refunded to HealthZone within thirty
days of the determination of such excess or as refunded by
the applicable governmental taxing authorities.
2. In the event of an audit by the Service or other taxing authority
of a consolidated federal or state income tax return that included
HealthZone, HealthZone shall be notified by Omni of such audit and
shall be entitled to participate, at its own expense, in
contesting all relevant items that affect the tax liability or tax
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<PAGE>
attributes of HealthZone with respect to such audit in
administrative and judicial proceedings. HealthZone pledges its
full cooperation in connection with any such audit. HealthZone and
Omni shall share jointly in any decisions involved in connection
with settlements of tax disputes to the extent that items are
involved that affect the tax penalty, or interest liability or tax
attributes of HealthZone. Omni may not agree to settle such a
dispute without the consent of HealthZone unless Omni releases
HealthZone from its liability to pay its share of the disputed
amount hereunder. If HealthZone and Omni agree to pay the
assessment, each party shall pay its allocable share as recomputed
in accordance with Paragraph 1(a) and payment shall be in
accordance with Paragraphs 1(b) and 5 hereof. If both parties
agree to contest a tax matter, then the costs of contesting the
matter shall be borne 50 percent by each party. If only one party
requests the contest of a tax matter, the party requesting the
contest shall bear all expenses associated with such contest.
3. In determining the allocation of consolidated federal and state
income tax return deficiencies and refunds as a result of audits
of the Service or other taxing authority and judicial
determinations, if any, among Omni and HealthZone, the following
principles shall govern:
(a) The HealthZone Tax Liability for deficiencies for any year
for which consolidated federal and state income tax returns
including HealthZone and Omni were filed shall be the
excess, if any, of (i) the total amount that HealthZone
would have paid (after taking into account such
deficiencies) if HealthZone filed its own separate
consolidated federal and state income tax returns (the
"HealthZone Liability") over (ii) the amount actually paid
(or considered to have been paid through intercompany
account entries) by HealthZone to Omni on account of tax
liabilities. In the determination of the HealthZone
Liability, appropriate credits and charges shall be made
for payments made at any time by or to HealthZone pursuant
to this Agreement and consistent prior practices of the
consolidated group. Any refunds of tax, penalty, or
interest relating to adjustments other than the carryback
of net operating losses, capital losses, or tax credits
shall be allocated in accordance with the Tax Sharing
Agreement.
(b) Payments to reflect the provisions of Subparagraph (a) of
this Paragraph 3 shall be made in accordance with the
provisions of Paragraph 5 hereof.
4. (a) Omni will permit HealthZone, or the designated
representative of HealthZone, upon at least three (3)
business days prior written notice, to have full access
during normal business hours from time to time, after the
Closing Date, to all relevant tax returns and supporting
papers therefor of
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Omni, in respect of periods ending on or before the
Closing Date, wherever located, and furnish, and request
that the independent accountants of Omni furnish to
HealthZone such additional tax and other information and
documents with respect to consolidated federal and state
income tax returns filed in respect of periods ending on or
before the Closing Date, as HealthZone or any of its
subsidiaries may from time to time reasonably request.
(b) Omni shall prepare the consolidated returns for the 1999
Tax Year and the Spin-Off Tax Year. HealthZone will, on or
prior to February 15, 2000, with respect to the 1999 Tax
Year and February 15 of the calendar year immediately
succeeding the Spin-Off Tax Year, furnish to Omni all
information and documentation necessary or useful in the
preparation of the consolidated federal and state income
tax returns for the Omni Group for the 1999 Tax Year and
the Spin-Off Tax Year, permit Omni, upon at least three (3)
business days prior written notice, to have full access
during normal business hours and from time to time, after
the Closing Date, to all tax returns and supporting papers
therefor of HealthZone, wherever located, and furnish, and
request the independent accountants of HealthZone to
furnish, to Omni such additional tax and other information
and documents in HealthZone's possession with respect to
consolidated federal and state income tax returns filed in
respect of periods including or ending before the Closing
Date as Omni may from time to time reasonably request.
HealthZone pledges its full cooperation in connection with
the preparation of the consolidated federal and state
income tax returns of the Omni Group for the 1999 Tax Year
and the Spin-Off Tax Year.
5. With respect to all consolidated federal and state income tax
returns filed by the Group:
(a) Omni will assist in filing for and obtaining federal and
state income tax refunds on behalf of HealthZone for any
tax year during which it was a member of the Omni Group as
a result of the carryback of losses or credits of
HealthZone from any tax years thereof commencing after the
Closing Date.
(b) HealthZone shall indemnify and hold harmless Omni on an
after-tax cost basis, from and against any liability, cost,
or expense, including, without limitation, any fine,
penalty, interest charge (restricted to interest in excess
of the rate established under Section 6621 of the Code and
interest that is in respect of the penalty portion of an
assessment), or accountants' or attorneys' fee, arising out
of fraudulent or negligently prepared in-
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formation, workpapers, documents, and other items used in
the preparation of, or presented in, any return, amended
return, or claim of refund filed for the Omni Group for the
1999 Tax Year and the Spin-Off Tax Year, and which
information, workpapers, documents, or other items
originated with and/or were prepared by HealthZone.
(c) HealthZone shall indemnify and hold harmless Omni on an
after-tax basis, from and against any liability, cost, or
expense incurred or paid by Omni in excess of its share
thereof, including any amount paid by Omni in connection
with an assessment by the Service or other taxing authority
under Paragraph 2.
6. HealthZone shall pay the amounts of tax deficiencies (and
penalties and interest, if any) allocated to it under Paragraph 2
(and for which it is obligated to make payment under Paragraph 2)
in federal or immediately available funds to such bank account as
shall be designated by Omni no later than the due date for the
payment of the tax being paid to or collected by the Service or
other taxing authority.
7. This Agreement shall be implemented pursuant to the following
rules:
(a) In calculating the HealthZoneTax Liability and the
HealthZone Liability for the 1999 Tax Year and the Spin-Off
Tax Year, all items shall be treated in a manner consistent
with the manner in which such items were reported in the
consolidated federal and state income tax returns filed or
to be filed by Omni and in accordance with the Tax Sharing
Agreement unless, as a result of a final determination by
the Service or other taxing authority or the courts
relating to such return, a different treatment is mandated.
(b) Any dispute hereunder shall be resolved by Arthur Anderson
or such other nationally recognized firm of independent
certified public accountants as shall be selected by Omni.
The decision of the accountants shall be final and binding
on Omni and HealthZone. Each party shall bear one half of
the costs of the accountants.
8. Notwithstanding any provision in this Agreement to the contrary,
in the event that the Service determines that the Spin-Off fails
to qualify as a tax-free distribution under Section 355 of the
Code, HealthZone shall pay to Omni the full amount of any taxes
(including penalties and interest) assessed against Omni as a
result of the failure of the Spin-Off to qualify for tax-free
treatment, and shall indemnify and reimburse Omni for any damages
required to be paid by Omni to any Omni
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<PAGE>
shareholder or other third party as a result of the failure of
the Spin-Off to qualify as a tax-free distribution under Section
355 of the Code and for any expenses or fees (including legal
fees) paid in connection with any action commenced by a
shareholder or other third party with respect to the taxable
status of the Spin-Off. Omni shall not be required to institute
any administrative or judicial proceedings with respect to any
assessment of tax relating to the Spin-Off, but, at the written
request of HealthZone, and at HealthZone's expense, shall
undertake any administrative or judicial proceedings relating to
any such assessment as HealthZone shall request.
9. This Agreement and each of its provisions shall be binding upon
and inure to the benefit of the parties and their respective heirs
and successors. Nothing in this Agreement is intended or shall be
construed to give any person or entity other than the parties and
their respective heirs or successors any rights or remedies under
or by reason of this Agreement.
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10. All notices and other communications required or permitted under
this Agreement shall be in writing, shall be deemed delivered upon
receipt, and shall be delivered in person or by courier or sent by
certified or registered mail, return receipt requested, first
class, postage prepaid, to the parties at their respective
addresses set forth below, or as to any party at such other
address as shall be designated by such party in a written notice
to the other party complying as to delivery with the terms of this
Paragraph:
To HealthZone: 5751 Uplander Way
Culver City, CA 90230
With a copy to: Peter M. Menard, Esq.
Sheppard, Mullin, Richter & Hampton LLP
Forty Eighth Floor
333 South Hope Street
Los Angeles, California 90071
To Omni: 5310 Beethoven Avenue
Los Angeles, CA 90066
Attn: Chairman of the Board
With a copy to: Peter A. Basilevsky, Esq.
Satterlee Stephens Burke & Burke LLP
230 Park Avenue, Suite 1130
New York, New York 10169
11. This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Utah.
12. In any action brought to enforce or interpret this Agreement, the
prevailing party shall be entitled to recover from the
nonprevailing party all costs and expenses of maintaining such
action, including, without limitation, reasonable attorney fees
and expenses incurred before such action is commenced, before
trial, at trial, after trial, and on appeal, whether the action is
at law, in equity, or in a bankruptcy case or proceeding.
13. The remedies provided in this Agreement are cumulative and not
exclusive of any remedies provided by law.
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14. This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original and all of which taken
together shall constitute but one and the same Agreement.
15. Klee Irwin hereby unconditionally guarantees payment of
HealthZone's obligations hereunder without set-off or counterclaim
in the event:
(a) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed seeking (i)
liquidation, reorganization or other relief in respect of
HealthZone or its debts, or of a substantial part of its
assets, under any Federal, state or foreign bankruptcy,
insolvency, receivership or similar law now or hereafter in
effect or (ii) the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official
for HealthZone or for a substantial part of its assets,
and, in any such case, such proceeding or petition shall
continue undismissed for 60 days or an order or decree
approving or ordering any of the foregoing shall be
entered; or
(b) HealthZone shall (i) voluntarily commence any proceeding or
file any petition seeking liquidation, reorganization or
other relief under any Federal, state or foreign
bankruptcy, insolvency, receivership or similar law now or
hereafter in effect, (ii) consent to the institution of,
or fail to contest in a timely and appropriate manner, any
proceeding or petition described in clause (a) of this
Section 15, (iii) apply for or consent to the appointment
of a receiver, trustee, custodian, sequestrator,
conservator or similar official for itself or for a
substantial part of its assets, (iv) file an answer
admitting the material allegations of a petition filed
against it in any such proceeding, (v) make a general
assignment for the benefit of creditors or (vi) take any
action for the purpose of effecting any of the foregoing.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
HEALTHZONE.COM
By: /s/ Klee Irwin
-------------------------------
Klee Irwin
Chief Executive Officer
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OMNI NUTRACEUTICALS, INC.
By: /s/ R. Lindsey Duncan
-------------------------------
Name: R. Lindsey Duncan
Title: Chairman
/s/ Klee Irwin
-------------------------------
Klee Irwin
9
<PAGE>
EXHIBIT 10.15
EXECUTION COPY
VOTING AGREEMENT
THIS AGREEMENT (the "Agreement") dated as of October 8, 1999, by and
among KLEE IRWIN ("Irwin") and MARGARETH IRWIN, both residing at 7825 Veragua
Drive, Playa del Rey, California 90292 (collectively, the "Irwins"), and R.
LINDSEY DUNCAN ("Duncan") in his capacity as a shareholder and Chairman of the
Board of Directors of Omni Nutraceuticals, Inc. a Utah corporation having its
principal place of business at 10549 W. Jefferson Boulevard, Culver City, CA
90232 ("Omni").
W I T N E S S E T H:
WHEREAS, the Irwins are the registered owners of 15,468,355 shares of
common stock, par value $.01 per share (the "Common Stock") of Omni,
constituting approximately 54.92% of all the issued and outstanding shares of
Common Stock of Omni; and
WHEREAS, the Irwins have this day entered into a Settlement Agreement
with Omni dated of even date hereof (the "Settlement Agreement") in connection
with the settlement of certain claims which Irwin and Omni have asserted against
each other; and
WHEREAS, in order to implement the terms of the settlement set forth in
the Settlement Agreement, the parties hereto desire, among other things, to
provide for stable and independent management of Omni and to enter into a voting
agreement in compliance with the provisions of Section 16-10a-731 of the Utah
Business Corporation Act ("UBCA").
NOW THEREFORE, the parties hereto agree as follows:
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1. CERTAIN DEFINITIONS. Unless otherwise defined herein or the
context otherwise requires, all capitalized terms used in this Agreement shall
have the meanings ascribed to such terms in the Settlement Agreement.
As used herein, the following terms shall have the following meanings:
(a) "Shareholders" shall mean the Irwins and Duncan.
(b) "Voting Securities" of Omni shall mean the shares of Common Stock
of Omni as well as any other securities of Omni entitled to vote generally for
the election of directors and any security convertible into or exchangeable or
exercisable for the purchase of common stock or other securities entitled to
vote for directors of Omni.
2. VOTING AND OTHER AGREEMENTS. (a) Until this Agreement terminates in
accordance with Section 2(i) hereof, all shares of Voting Securities owned by
the Shareholders, or by any transferee of such securities, shall be voted in all
elections of directors as follows:
(i) as for Duncan's shares; to be voted as a unit for the
candidates for Class I and Class II directors of Omni named by Irwin in a
written notice delivered to Duncan no less than five (5) days before
definitive proxy materials are sent to shareholders of Omni in connection
with a regular election and no less than forty-eight (48) hours before
any other election of directors; and
(ii) as for the Irwins' shares; to be voted as a unit for the
candidates as for Class I and Class II directors to be named by Duncan in
a written notice delivered to Irwin no less than five (5) days before
definitive proxy materials are sent to shareholders of Omni in connection
with a regular election and no less than forty-eight (48) hours before
any other election of directors; and
(iii) as for the Shareholders' shares; to be voted as a unit for
the candidate for Class III director to be named by the two Class II
directors in a written notice delivered to the Shareholders no less than
five (5) days before definitive proxy materials are sent to shareholders
of Omni in connection with a regular election and no less than
forty-eight (48) hours before any other election of directors.
In the event that there is a shareholder vote held to remove a director,
the Shareholders each agree (i) to vote their shares against any removal of any
Class II director unless such removal is due to such director's embezzlement of
funds of Omni or his conviction of a felony or as a result of any governmental
investigation or
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proceeding which may result in such director being barred from holding office
in a public company, (ii) to vote their shares as set forth above with
respect to the election of Class I directors as directed by such other party
(Duncan or Irwin, as the case may be) whose director is the subject of such
vote to remove and (iii) to vote their shares as set forth above with respect
to the election of a Class III director as directed by the Class II directors
as set forth above with respect to the election of Class III directors.
In the event that there is a vacancy created in the board of
directors, whether by removal, resignation or otherwise, the Shareholders
each agree to vote their shares as set forth above in favor of the candidate
for replacement named by such other party (Irwin or Duncan, as the case may
be), or the Class II directors, whose director's absence creates such vacancy.
(b) IRREVOCABLE PROXIES. The Irwins and Duncan each agree to give
the other (Duncan or Irwin, as the case may be) by their execution of this
Agreement and the Irrevocable Proxy in the forms attached hereto as Exhibit
A-1 and A-2, respectively, in order to secure the rights set forth above, an
irrevocable proxy (the "Irrevocable Proxy") of such shareholder, with full
power of substitution, to vote all of their shares of Voting Securities (i)
at all meetings of the shareholders of Omni for the election of directors of
Omni, whenever and wherever the same are held, or at any adjournment thereof,
specifically on the question of, and limited to the election of directors as
set forth above, if such other party (Duncan or the Irwins, as the case may
be) does not vote as set forth above; and (ii) by means of a Written Consent
of Shareholders specifically on the question of, and limited to the election
of directors as set forth above, if such other party (Duncan or the Irwins,
as the case may be) does not vote as set forth above. In addition, the Irwins
hereby agree to give Duncan by their execution of this Agreement and the
Irrevocable Proxy in the form attached hereto as Exhibit A-1 their
irrevocable proxy, with full power of substitution, to vote all of their
shares of Voting Securities at the next annual meeting of shareholders (or
special meeting in lieu of annual meeting) or at any adjournment thereof,
whenever or wherever held, specifically limited to the approval of the matter
set forth in Section 2(d)(iii) below.
(c) AMENDMENTS TO CERTIFICATE OF INCORPORATION AND BY-LAWS. Until
this Agreement terminates in accordance with Section 6 hereof, all shares of
Voting Securities held by the Shareholders, or any transferee of such
securities, shall be voted against any proposed amendment to the Articles of
Incorporation or to the By-Laws of Omni, unless the parties hereto agree to
vote in favor of such amendment, such agreement to be memorialized no later
than five (5) days before definitive proxy materials are sent to Omni
shareholders in connection with any meeting of the shareholders; or no later
than the five (5) days before the Record Date of a solicitation of written
consents of shareholders.
(d) COVENANTS. (i) Until this Agreement terminates in accordance
with Section 2(i) hereof, the Irwins shall not, individually or as a member
of any group
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(as defined in Section 13(d) of the Securities Exchange Act of 1934, as
amended ("Exchange Act"), and the rules and regulations promulgated
thereunder), directly or indirectly, seek to (A) effect or participate in a
"Change in Control" of the Company as defined in Section 4(e) of the
Employment Agreement (as defined in the Settlement Agreement), which
definition is hereby incorporated by reference herein as if set forth in
full, including, without limitation, voting any shares of Voting Securities
which they beneficially own individually or as a member of a group (x) to
approve any merger or consolidation involving the Company or sale of all or
substantially all of the assets of the Company, or (y) to transfer beneficial
ownership of any of their shares of Common Stock in one or more transactions
(other than for any transfers of Voting Securities to transferees who have
acquired such Securities in ordinary unsolicited brokers' transactions
effected through the facilities of a securities exchange on which the Common
Stock is then listed or in the over-the-counter market pursuant to the
provisions of Rule 144 promulgated under the Securities Act of 1933, as
amended (the "Securities Act"), or in a widely-distributed public offering of
such Securities registered under the Securities Act, or in a transaction
approved by the Board of Directors of Omni, or in a private transaction where
the transferee agrees to become bound by the provisions hereof, or in one or
more private transactions which do not exceed in any 12 month period
commencing the date hereof, individually or in the aggregate, 1,000,000
shares), in connection with any such Change in Control, and (B) affect
management of the Company (except in Irwin's capacity as a director while
participating in Board of Directors' meetings). As used in this Agreement
the term "beneficial ownership" or any variation thereof shall have the
meaning provided for in Rule 13d-3 promulgated under the Exchange Act, as the
same may be in effect from time to time.
(ii) For so long as Irwin serves as a director of Omni he hereby
agrees that he will not and will cause his wife not (A) to amend or terminate
Duncan's Employment Agreement (and Irwin agrees to vote in favor of renewing
such Agreement upon terms acceptable to a majority of the Board of Directors of
the Company) or (B) without Duncan's consent, to amend or terminate Louis
Mancini's Employment Agreement.
(iii) The Irwins agree to vote all of their shares of Voting
Securities as a unit at the next meeting of shareholders of Omni in favor of
increasing the maximum number of shares of Common Stock that may be issued
pursuant to stock options or other stock awards granted pursuant to Omni's Long
Term Stock Incentive Plan to four million five hundred thousand (4,500,000)
shares.
(iv) Duncan agrees, in his capacity as a director of Omni, to
approve the Settlement Agreement, and in his capacity as a shareholder of Omni,
agrees not to initiate any legal proceeding against the Irwins in respect of any
matters for which Omni has released Irwin pursuant to the provisions of Section
5 of the Settlement Agreement. Nothing in the foregoing, however, shall limit
any rights Duncan may have in the event that the Irwins, or either of them,
breaches the terms and conditions of the Settlement Agreement or any other
agreement or undertaking to which they, or either
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of them, is a party or by which they, or either of them, is bound, related
thereto or delivered in connection therewith, including, without limitation,
the provisions hereof.
(e) AFTER-ACQUIRED VOTING SECURITIES. The terms and provisions of
this Agreement shall apply to all of the Voting Securities now owned or which
may be issued hereafter to the Shareholders or their transferees in consequence
of any additional issuance, purchase, conversion of other securities of Omni,
exchange or reclassification of shares, corporate reorganization or any other
form of recapitalization or consolidation or merger or share split-up or share
dividend or distribution or which are acquired by the Shareholders in any manner
whatsoever. Nothing in the foregoing shall apply to the securities of
HealthZone.com.
(f) USE OF WRITTEN CONSENTS. The Irwins and Duncan each agree that
they will not exercise their right to vote by means of a Written Consent of
Shareholder without the prior written agreement of the other party (Duncan or
Irwin, as the case may be).
(g) ELECTION UPON WRITTEN CONSENT. Pursuant to Section 16-10a-704 of
the UBCA, upon execution of this Agreement, this Agreement shall constitute the
duly executed Written Consent of Shareholders of the Irwins and of Duncan to the
election of the directors whose names are set forth on Exhibit B hereto.
(h) REMEDIES. Without regard to whether all of the foregoing matters
will be deemed material or important by any court or other tribunal of competent
jurisdiction, the undersigned stipulate that as between them, they will be
conclusively deemed to be material and important and to affect severely the
effective and successful conduct of the business of Omni, that money damages
would not be a sufficient remedy for any breach of this Agreement and that in
the event of a breach or threatened breach by any of the parties hereto of the
provisions of this Agreement, the other parties shall be entitled to specific
performance and injunctive relief as remedies for any such breach. Such
remedies shall not be deemed to be exclusive remedies for the breach of this
Agreement but shall be in addition to all other remedies available at law or in
equity.
(i) TERM. This Agreement shall terminate on the earlier of the fifth
(5th) anniversary hereof or the date on which the Irwins or Duncan or their
successors cease to be the beneficial owners of at least 1,432,250 and 450,000
shares of Voting Securities, respectively. This Agreement may be amended or
terminated by written agreement between the undersigned.
3. MISCELLANEOUS.
(a) NOTICES. Except as otherwise expressly herein provided,
all notices under this Agreement shall be in writing and shall be deemed
received upon
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personal delivery against receipt therefor, or if sent by mail, three (3)
business days after deposit in the United States Postal Service, first class,
postage prepaid, registered or certified, return receipt requested. All
notices given hereunder shall be addressed:
In the case of the Irwins to: Mr. Klee Irwin
7825 Veragua Drive
Playa del Rey, California 90292
With a copy to: Ernest Burger, Esq.
515 Flower Street
Suite 2100
Los Angeles, CA 90071
Or in the case of Duncan to: R. Lindsey Duncan
5310 Beethoven Avenue
Los Angeles, CA 90066
With a copy to: Satterlee Stephens
Burke & Burke LLP
230 Park Avenue
New York, New York 10169
Attn: Peter A. Basilevsky, Esq.
or to such other address or to such other person as Omni or a party hereto shall
have last designated by notice to the other parties hereto.
(b) INTEGRATION AND MODIFICATION. This Agreement contains the
entire agreement among the parties hereto with respect to the transactions
contemplated hereby and there are no agreements, warranties or representations,
which are not set forth herein. All prior negotiations, agreements and
understandings are superseded hereby. This Agreement may not be modified or
amended except by an instrument in writing signed by or on behalf of the parties
hereto.
(c) GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Utah, without
giving effect to the principles of conflicts of laws thereof.
(d) BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and the heirs and legal
representatives of the parties hereto and shall be binding upon all transferees
of the Voting Securities and their heirs,
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legal representatives, successors and assigns (other than for any transferees
of Voting Securities who have acquired such Securities in ordinary
unsolicited brokers' transactions effected through the facilities of a
securities exchange on which the Common Stock is then listed or in the
over-the-counter market pursuant to the provisions of Rule 144 promulgated
under the Securities Act, or in a widely distributed public offering of such
Securities registered under the Securities Act, or in a transaction approved
by the Board of Directors of Omni, or in one or more private transactions
effected by either the Irwins or Duncan which do not exceed in any 12 month
period commencing the date hereof, individually or in the aggregate,
1,000,000 shares). Neither this Agreement nor any of the rights granted
hereunder may be assigned by any party hereto without the prior written
consent of the other parties.
(e) COUNTERPARTS. This Agreement may be executed
simultaneously in any number of counterparts, each of which shall be deemed an
original but all of which together shall constitute one and the same instrument.
(f) HEADINGS. The Section and Subsection headings in this
Agreement are for convenience of reference only and shall not be deemed to alter
or affect any provision hereof.
(g) WAIVER. No delay on the part of any party here to in
exercising any power or right hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise of any power or right hereunder preclude
other or further exercise there of or the exercise of any other power or right.
No waiver shall be enforceable against any party hereto unless in writing,
signed by the party against whom such waiver is claimed, and shall be limited
solely to the one event.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
/s/ Klee Irwin
----------------------------------
KLEE IRWIN
/s/ Margareth Irwin
----------------------------------
MARGARETH IRWIN
/s/ R. Lindsey Duncan
----------------------------------
R. LINDSEY DUNCAN
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EXHIBIT A-1
IRREVOCABLE PROXY FOR THE
VOTING AGREEMENT OF
KLEE AND MARGARETH IRWIN AND R. LINDSEY DUNCAN
By their execution hereof and in order to secure the obligations of the
undersigned set forth in the Voting Agreement ("Voting Agreement") dated October
__, 1999, by and among Klee Irwin, Margareth Irwin and R. Lindsey Duncan, each
of Klee Irwin and Margareth Irwin hereby irrevocably constitutes and appoints R.
Lindsey Duncan and his successors and assigns under the Voting Agreement as
their true and lawful attorney-in-fact, to: (1) vote, in accordance with the
Voting Agreement, all shares of common stock of Omni Nutraceuticals, Inc. (the
"Company") which the undersigned may be entitled (whether now owned or hereafter
acquired) to vote upon the election of directors at any annual or special
meeting of the shareholders of the Company; (2) vote, in accordance with the
Voting Agreement, by means of a Written Consent of Shareholders, all shares of
common stock of the Company which the undersigned may be entitled (whether now
owned or hereafter acquired) to vote upon the election of directors; (3) vote,
in accordance with the Voting Agreement, all shares of common stock of the
Company which the undersigned may be entitled (whether now owned or hereafter
acquired) to vote at any annual or special meeting of the shareholders of the
Company to approve an amendment to the Company's Long Term Stock Incentive Plan
to increase the number of shares of common stock that may be awarded pursuant to
stock options or other stock awards under such Plan to four million five hundred
thousand (4,500,000) shares and (4) execute, acknowledge, swear to and fill in
the undersigned's name, place, and stead any consent, approval, or other
documents to be executed by the shareholders in connection with such elections.
The Proxy granted hereby is irrevocable and shall be deemed coupled with an
interest in the Voting Agreement for the term stated therein and it shall
survive either of the undersigned's disability and insolvency.
IN WITNESS WHEREOF, Klee and Margareth Irwin have each executed this
Irrevocable Proxy this ____ day of October 1999.
/s/ Klee Irwin
-----------------------------------
KLEE IRWIN
/s/ Margareth Irwin
-----------------------------------
MARGARETH IRWIN
15,468,355 Shares of Common Stock owned as Joint Tenants with Right of
Survivorship at time of execution
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EXHIBIT A-2
IRREVOCABLE PROXY FOR THE
VOTING AGREEMENT OF
KLEE AND MARGARETH IRWIN AND R. LINDSEY DUNCAN
By its execution hereof and in order to secure the obligations of the
undersigned set forth in the Voting Agreement ("Voting Agreement") dated
October __, 1999, by and among Klee Irwin, Margareth Irwin and R. Lindsey
Duncan, R. Lindsey Duncan hereby irrevocably constitutes and appoints Klee
Irwin as his true and lawful attorney-in-fact, to: (1) vote, in accordance
with the Voting Agreement, all shares of common stock of Omni Nutraceuticals,
Inc. (the "Company") which the undersigned may be entitled (whether now owned
or hereafter acquired) to vote upon the election of directors at any annual
or special meeting of the shareholders of the Company; (2) vote, in
accordance with the Voting Agreement, by means of a Written Consent of
Shareholders, all shares of common stock of the Company which the undersigned
may be entitled (whether now owned or hereafter acquired) to vote upon the
election of directors; and (3) execute, acknowledge, swear to and fill in the
undersigned's name, place, and stead any consent, approval, or other
documents to be executed by the shareholders in connection with such
elections. The Proxy granted hereby is irrevocable and shall be deemed
coupled with an interest in the Voting Agreement for the term stated therein
and it shall survive the undersigned's disability and insolvency.
IN WITNESS WHEREOF, R. Lindsey Duncan has executed this Irrevocable Proxy
this 8th day of October 1999.
/s/ R. Lindsey Duncan
-----------------------------------
R. LINDSEY DUNCAN
5,589,653 Shares of Common Stock owned at time of execution
10
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EXHIBIT B
BOARD OF DIRECTORS
OF
OMNI NUTRACEUTICALS, INC.
R. Lindsey Duncan (Class I nominated by Duncan)
Klee Irwin (Class I nominated by Irwin)
Andrew Valero (Class II nominated by Irwin)
Jonathan Diamond (Class II nominated by Duncan)
Class III director to be nominated by Messrs. Valero and Diamond within 30 days
after the date of the Voting Agreement.
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EXHIBIT 10.16
EXECUTION COPY
EXHIBIT C
ESCROW AGREEMENT
This Escrow Agreement (together with all amendments and Appendices thereto being
hereinafter referred to as the ("Escrow Agreement" or "Agreement") made as of
this 8 day of October, 1999, by and among:
A. Mr. Klee Irwin ("Irwin") and Mrs. Margareth Irwin, their respective
heirs, legal representatives and assigns (collectively referred to herein as
"Shareholders");
B. Wells Fargo Bank, as the Escrow Agent (the "Escrow Agent"); and
C. Omni Nutraceuticals, Inc., a Utah corporation, its successors in interest
and assigns (collectively referred to herein as the "Company").
W I T N E S S E T H:
WHEREAS, subject to the terms and conditions hereinafter set forth, and
consistent with the terms and conditions set forth in that certain Settlement
Agreement of even date herewith by and between the Company and Irwin and
consented to by Mrs. Margareth Irwin (the "Settlement Agreement"), the
Shareholders and the Company desire to appoint the Escrow Agent to act as escrow
agent and to accept and hold certificates evidencing (i) one million, twenty two
thousand two hundred twenty-two (1,022,222) shares (the "Spin-Off Guarantee
Shares") and (ii) one million (1,000,000) shares (the "Indemnification Shares"
and together with the Spin-Off Guarantee Shares, the "Escrow Shares") of the
common stock, par value $.01 per share ("Common Stock") of the Company together
with one or more stock powers executed by Shareholders in blank with medallion
signature guarantees affixed thereto (such stock powers and certificates and all
distributions thereon or in respect thereof being collectively referred to
herein as the "Escrow Property"); and
WHEREAS, subject to the terms and conditions hereinafter set forth, the Escrow
Agent is willing to accept such appointment.
NOW, THEREFORE, in consideration of the mutual agreements herein contained and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged and confirmed, the parties hereto agree as follows:
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Section 1. DEFINITIONS; CONSTRUCTION. (a) For the purposes of this agreement,
the terms, "Escrow Agreement", "Agreement," "Irwin", "Shareholders", "Escrow
Agent", "Company", "Spin-Off Guarantee Shares", "Indemnification Shares",
"Escrow Shares", "Common Stock", "Escrow Property", and "Settlement Agreement"
shall have the respective meanings ascribed to them hereinabove and the terms
listed below shall have the meanings ascribed to them herein:
"Business Day": Any day except a Saturday, Sunday, a legal holiday in the City
in which the Escrow Agent is located or a day on which banking institutions in
such City are authorized to be closed.
"Claim": Shall have the meaning ascribed to such term in subsection 3(b) hereof.
"Counternotice": Shall have the meaning ascribed to such term in subsection
3(b) hereof.
"Deposit Date": Shall have the meaning ascribed to such term in subsection 3(a)
hereof.
"Escrow Agent's Authorization": Shall have the meaning ascribed to such term in
subsection 3(d) hereof.
"Escrow Agent's Receipt": Shall have the meaning ascribed to such term in
subsection 3(a) hereof.
"Losses": Shall have the meaning ascribed to such term in subsection 6(g)
hereof.
"Notice": Shall have the meaning ascribed to such term in subsection 3(b)
hereof.
"Termination Date": Shall have the meaning ascribed to such term in Section 8
hereof.
"Voting Agreement": Shall have the meaning ascribed to such term in Section 7(e)
hereof.
(b) References herein to Sections and subsections are to Sections and
subsections of this Escrow Agreement, unless otherwise indicated. The words
"hereof", "herein", "hereunder" and comparable terms refer to the entirety of
this Escrow Agreement and not to any particular Section or other subdivision
hereof. Words in the singular include the plural and in the plural include the
singular. Words in the neuter gender shall include the masculine and feminine
and vice versa. The word "or" is not exclusive. The word "including" shall be
deemed to mean "including, without limitation". The Section headings set forth
in this Escrow Agreement are for reference purposes only and shall not affect in
any way the meaning, interpretation or enforcement of this Escrow Agreement. In
the event of any conflict between the terms or provisions of this Escrow
Agreement and the terms or provisions of the Settlement Agreement, the
Settlement Agreement shall govern; provided that if any such conflict relates
directly or indirectly to the duties, rights, liabilities, privileges, or
immunities of the Escrow Agent, then this Escrow Agreement shall govern.
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Section 2. APPOINTMENT, RESIGNATION OR REMOVAL OF ESCROW AGENT. The Escrow
Agent is hereby appointed as an escrow agent to hold and dispose of the Escrow
Property, as provided and subject to the terms and conditions of the Settlement
Agreement and this Escrow Agreement; provided, however, that the Escrow Agent is
not a party to nor is it bound by the provisions of the Settlement Agreement.
The Escrow Agent agrees to hold the Escrow Property in escrow until distribution
thereof is directed as provided in subsection 3(b) hereof or this Escrow
Agreement is terminated as provided in this Section 2, or in subsection 3(e) or
Section 8 hereof. The undersigned hereby agree that the Escrow Agent may resign
at any time upon five (5) Business Days written notice given to each of the
undersigned, with such resignation being effective on the earlier to occur of
(i) the appointment of a successor Escrow Agent mutually acceptable to the
parties hereto or (ii) or the deposit of the Escrow Property with a court of
competent jurisdiction as provided in Section 6(h) hereof. Shareholders and the
Company further reserve the right, acting jointly, to remove the Escrow Agent as
escrow agent at any time upon five (5) Business Days written notice to the
Escrow Agent. In the event of any such resignation or removal, the Escrow
Agent's fees and expenses hereunder shall be paid in full prior to the
effectiveness of any such resignation or removal and all fees and expenses
received by the Escrow Agent shall be nonrefundable, and, upon all the Escrow
Property being disbursed by the Escrow Agent in accordance with subsection 3(b)
hereof, or the termination of this Escrow Agreement as provided in Section 8
hereof, the duties of the Escrow Agent hereunder shall terminate.
Section 3. RECEIPT AND DISTRIBUTION OF ESCROW PROPERTY.
(a) The Shareholders are delivering to the Escrow Agent one or more certificates
evidencing the Indemnification Shares (concurrently with the execution of this
Agreement) and the Spin-Off Guarantee Shares (when required by the Settlement
Agreement), owned of record by them, free and clear of all liens, charges,
encumbrances or any rights of third parties (as increased by any dividends or
other distributions thereon (other than any distributions of HealthZone.com
securities) and as reduced by any amounts withdrawn under subsection 3(b)),
together with stock powers therefor duly executed in blank with medallion
signature guarantees affixed thereto. The date of each such delivery to the
Escrow Agent is herein referred to as the "Deposit Date". Against receipt of
any of the Escrow Property, Escrow Agent shall deliver an acknowledgment in
writing to the Company and Shareholders or their representatives designated in
writing (the "Escrow Agent's Receipt") of the Escrow Agent's receipt of the
Escrow Property. Thereafter, the Escrow Property, or any portion thereof, shall
be released from escrow by the Escrow Agent solely in accordance with the terms
and conditions of the Settlement Agreement and pursuant to the provisions of
subsection 3(b) hereof.
(b) From time to time on or before the Termination Date the Company may give
notice in substantially the form of Appendix A attached hereto (a "Notice") to
Irwin on behalf of the Shareholders and to the Escrow Agent specifying the
nature and amount of any claim (a "Claim") it may have under the Settlement
Agreement, the amount of Escrow Shares necessary to satisfy the Claim and the
basis for the Company's determination of such
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<PAGE>
amount of Shares. The Company may make more than one Claim with respect to
any underlying circumstance or series of events. Within fifteen (15) days
following receipt by the Escrow Agent of proof of delivery (in accordance
with the provisions of Section 4 hereof) to Irwin of the Notice regarding a
Claim, Irwin, acting on behalf of the Shareholders, shall give notice to the
Company and to the Escrow Agent specifying whether Irwin (i) agrees to the
delivery out of the Escrow Property of the number of Escrow Shares specified
in the Notice or (ii) disputes such Claim (a "Counternotice"), specifying the
basis for his objection. In the event that Irwin disputes such Claim in his
Counternotice, such Claim shall be resolved as provided in subsection 3(c).
If no such Counternotice is received by Escrow Agent within such fifteen-day
period or the Counternotice fails to specify a reason for Irwin's objection,
then the amount claimed by the Company as set forth in its Notice shall be
deemed fixed for purposes of this Escrow Agreement and the Settlement
Agreement and, within three (3) days after the expiration of such fifteen-day
period, the Escrow Agent shall, in payment thereof, deliver to the Company,
out of the Escrow Property, that number of shares of Common Stock, in a form
transferable by delivery, as shall be specified in the Notice. Escrow Agent
shall not inquire into or consider whether a Claim complies with the
requirements of the Settlement Agreement. All payments of Claims made
hereunder from the Escrow Property shall be deducted from the Escrow Shares
then comprising the Escrow Property.
(c) If a Counternotice is given with respect to a Claim, Escrow Agent shall
thereafter make a distribution of Escrow Property with respect thereto only in
accordance with its receipt of joint written instructions of the Company and
Irwin, acting on behalf of the Shareholders, in the form of Appendix B hereto
("Escrow Agent's Authorization"), or a final non-appealable order of a court of
competent jurisdiction. Any such court order submitted to the Escrow Agent
(with a copy to Irwin) shall be accompanied by a legal opinion by counsel for
the presenting party satisfactory to Escrow Agent (and its counsel, if any) to
the effect that the order is final and non-appealable. Upon determination by
the Escrow Agent (and its counsel, if any) that such court order is final and
non-appeable, the Escrow Agent shall act on such Authorization, court order and
legal opinion without further question.
(d) Absent receipt of a Counternotice disputing a Claim, any such release and
delivery of any of the Escrow Property shall be effected in accordance with
the instructions contained in the Notice. Upon receipt of, and in accordance
with, the Notice, that portion of the Escrow Property specifically identified
in the Notice, free and clear of all liens, charges and encumbrances arising
by, through and under the Escrow Agent, shall be released and delivered as
set forth in such Notice. Any release of any of the Escrow Property shall
only be made pursuant to the terms of a duly completed and fully executed
Escrow Agent's Authorization delivered to the Escrow Agent or duly applicable
final and non-appealable court order.
(e) In the event of (i) the resignation or removal of the Escrow Agent as
provided in Section 2 hereof, Shareholders and the Company, shall execute and
deliver an Escrow Agent's Authorization instructing the Escrow Agent as to
the delivery of the Escrow Property; provided, however, that in the event
such resignation or removal occurs prior to
4
<PAGE>
the Termination Date, the Escrow Property shall be forwarded to a successor
Escrow Agent promptly selected by Shareholders and the Company to be held
pursuant to the terms of an escrow agreement substantially similar to this
Escrow Agreement, or (ii) on the Termination Date, the Company and the
Shareholders shall execute and deliver an Escrow Agent's Authorization
instructing the Escrow Agent as to the delivery of any Escrow Property then
held in escrow. Any such delivery shall relieve the Escrow Agent of any
further obligations hereunder or with respect to the Escrow Property, except
as set forth in Sections 6(a), (f) and (m)(6) hereof, which shall survive the
termination of the Escrow Agreement.
(f) Absent the prior receipt of a Notice of a pending or threatened Claim
which has not been resolved in accordance with the provisions of this Section
3, on December 31, 1999, the Escrow Agent shall deliver to the Shareholders
one or more certificates evidencing 500,000 Indemnification Shares and,
again, absent the prior receipt of a Notice of a pending or threatened Claim
which has not been resolved in accordance with the provisions of this Section
3, on March 30, 2000, the Escrow Agent will deliver to the Shareholders one
or more certificates evidencing the balance of the Indemnification Shares.
Section 4. NOTICES. All communications required or permitted to be given or
made hereunder shall be in writing and mailed (by first class registered or
certified mail, return receipt requested, postage prepaid), personally
delivered, delivered by courier, or by Federal Express or sent by facsimile
and confirmed, if to the Escrow Agent, to it at the address appearing by the
Escrow Agent's name on the signature page hereof; or if to the Company, to it
at the address appearing by the Company's name on the signature page hereof
with a copy to its counsel, to such counsel at the address appearing by such
counsel's name on the signature page hereof; or, if to Shareholders, to
Shareholder's address appearing by Shareholder's name on the signature page
hereof, with a copy to shareholders' counsel, to such counsel at the address
appearing by such counsel's name on the signature page hereof, or to such
other address as any party hereto shall notify the other parties hereto in
the manner herein provided.
Section 5. FEES AND EXPENSES. All fees and expenses, if any, of the Escrow
Agent for its services hereunder as set forth in Appendix C hereto shall be
jointly paid by the Company and by Irwin in equal shares. The Escrow Agent
shall also be reimbursed jointly by Irwin and by the Company in equal shares
for all reasonable legal fees, expenses and disbursements incurred or made by
the Escrow Agent in the performance of its services hereunder. In the event
the Escrow Agent resigns for any reason whatsoever or is terminated; it shall
have no obligation to return any of the Escrow Agent's expenses or fees paid
in connection with the reasonable performance of its services hereunder.
Section 6. ESCROW AGENT DUTIES, EXCULPATION AND INDEMNIFICATION. The
undersigned parties agree that the following provisions shall control with
respect to the rights, duties, liabilities, privileges and immunities of the
Escrow Agent.
5
<PAGE>
(a) The Escrow Agent acts as depository only and not as a fiduciary or
agent in any respect, and is not responsible, or liable in any manner
whatsoever, for the sufficiency, correctness, genuiness or validity of the
subject matter of the escrow, or any part thereof. The Escrow Agent shall
take reasonable steps necessary or appropriate to safeguard the Escrow
Property and to protect it from theft, fire, flood or other disasters.
(b) It shall not be the duty of the Escrow Agent to see that any duties or
obligations herein or elsewhere imposed on any other parties are performed or
honored.
(c) The Escrow Agent shall not be responsible (other than for its own
recitals and/or statements) for any recital herein or any other statements in
any other instrument described in this Escrow Agreement (other than for the
Escrow Agent's Receipt), including the Settlement Agreement, or for the
validity of execution by any party to any such instruments (other than for
the execution and delivery of the Escrow Agent's Receipt and the Escrow
Agreement by the Escrow Agent), or for the validity of any representations or
other statements set forth in any such instruments.
(d) As to the existence or non-existence of any fact or as to the
sufficiency or validity of any instrument or proceeding, or as to its
authorization to perform any act described herein, the Escrow Agent shall be
entitled to rely upon any written notice signed by the duly authorized party
to this Escrow Agreement, but nothing herein shall prevent the Escrow Agent
from requiring such further evidence that it deems reasonably necessary or
advisable.
(e) The Escrow Agent shall not be required to give any bond or surety in
respect to the execution of this Escrow Agreement or to the exercise of its
powers hereunder.
(f) The Escrow Agent shall not be liable for anything which it may do or
refrain from doing in connection herewith, except for its own gross
negligence or willful misconduct and the Company and Shareholders agree not
to commence any action, suit or proceeding against the Escrow Agent except
for willful violations or gross negligence with respect to the performance or
failure to perform any express duty by the Escrow Agent as set forth in this
Escrow Agreement.
(g) The Company and the Shareholders, jointly and severally, agree to
defend, indemnify and save the Escrow Agent harmless from all liability,
loss, cost, claims, damages and expenses, including reasonable attorney's
fees (collectively, "Losses"), suffered or incurred by the Escrow Agent as a
result of any matter relating directly or indirectly to this Escrow
Agreement, except for Losses determined to have been caused by acts or
omissions of the Escrow Agent in the performance of its duties under this
Escrow Agreement. As between the Company and the Shareholders such
indemnification obligation shall be shared equally. These indemnities shall
survive the resignation or removal of the Escrow Agent and any termination of
this Escrow Agreement. Either the Company, on the one hand, or the
Shareholders, on the other hand, shall be entitled to seek reimbursement from
the other party for all Losses suffered or incurred by the Company or the
Shareholders, as the case may be, in respect of the
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<PAGE>
failure by the other party to satisfy its or their share of such obligation
to indemnify the Escrow Agent hereunder.
(h) If any controversy arises among the parties to the Agreement, or with
any other party, concerning the subject matter of this Agreement, its terms
or conditions, the Escrow Agent may, at its option, file an action in
interpleader requiring the parties to answer and litigate any claims and
rights among themselves. The Escrow Agent is authorized to deposit with the
Clerk of the Court all Escrow Property held in Escrow, except all costs,
expenses, charges and attorneys fees incurred by the Escrow Agent due to the
interpleader action, or otherwise appropriately incurred, shall first be paid
to the Escrow Agent and the parties jointly and severally agree to payment
from any funds on deposit in the Escrow account. Upon initiating such
action the Escrow Agent shall be fully released and discharged from all
obligations and liabilities imposed by the terms of this Agreement.
(i) The Escrow Agent may consult with legal counsel reasonably acceptable
to the Company and the Shareholders in the event of any dispute or question
as to the construction of any of the provisions hereof or its duties
hereunder or other matters relating hereto, and it shall incur no liability.
(j) The Company shall at the execution of this Escrow Agreement and from
time to time thereafter upon reasonable request by the Escrow Agent furnish
the Escrow Agent with a certified copy of a resolution of the Company's Board
of Directors authorizing the person or persons to give written instructions
and other communications hereunder to the Escrow Agent for and on behalf of
the Company pursuant to this Escrow Agreement. Such resolutions shall
specify the class of instructions that may be given by each such person to
the Escrow Agent under this Escrow Agreement together with certified
signatures of such persons authorized to sign. This Escrow Agreement and any
such resolution shall constitute conclusive evidence of the authority of the
signatories designated therein to act. Any such resolution shall be
considered in full force and effect with the Escrow Agent being fully
protected in acting in reliance thereon unless and until the Escrow Agent
receives written notice to the contrary.
(k) The Escrow Agent shall have the right at any time it deems reasonably
appropriate to seek an adjudication in a court of competent jurisdiction as
to the respective rights of the parties hereto and shall not be held liable
by any party hereto for any delay or the consequences of any delay occasioned
by such resort to court, and the Company and the Shareholders agree to pay,
jointly and severally, all of the Escrow Agent's costs and expenses relating
to any such adjudication (including reasonable attorneys fees and expenses).
In the event that the Escrow Agent shall be reasonably uncertain as to its
duties or rights hereunder or shall receive instructions, claims or demands
from any party hereto which, in the Escrow Agent's opinion, conflict with any
of the provisions of this Escrow Agreement, the Escrow Agent shall be
entitled to refrain from taking any action and its sole obligation thereupon
shall be to keep safely all property held in escrow until it shall be
directed otherwise in writing by all of the other parties hereto or by a
final order or judgment of a court of competent jurisdiction.
7
<PAGE>
(l) The Company and Shareholders shall, jointly and severally, indemnify
and hold harmless the Escrow Agent against and in respect of any liability
for taxes and for any penalties or interest in respect of taxes, if any,
attributable to the Escrow Property.
(m) The parties to this Escrow Agreement hereby further agree that:
(1) The Escrow Agent shall not be required to invest any Escrowed Property
held hereunder, except pursuant to an Escrow Agent's Authorization signed by
both the Company and Irwin, acting on behalf of the Shareholders. In the
event that any interest or dividend payment in cash is earned on any Escrow
Property, Irwin, acting on behalf of the Shareholders, shall, upon request
made by the Escrow Agent, direct the Escrow Agent as to the investment,
allocation or payment of such interest or dividend and furnish the Escrow
Agent with appropriate taxpayer identification numbers and any other
appropriate information.
(2) The Escrow Agent may rely solely and conclusively upon any signature
believed to be genuine or to be the signature of an individual authorized
pursuant to Section 6(j) hereof.
(3) Anything in this Escrow Agreement to the contrary notwithstanding, in
no event shall the Escrow Agent be liable for special, indirect or
consequential loss or damage of any kind whatsoever (including but not
limited to lost profits), even if the Escrow Agent has been advised of the
likelihood of such loss or damage and regardless of the form of action,
except for any such loss or damage caused by the Escrow Agent's gross
negligence or willful misconduct. The Escrow Agent shall not be liable in
any respect for any diminution in value of the Escrow Property, except for
any such diminution in value caused by the Escrow Agent's gross negligence or
willful misconduct.
(4) Neither this Escrow Agreement nor any right or interest hereunder may
be assigned in whole or in part by any party without the prior written
consent of the other parties, which consent shall not be unreasonably
withheld.
(5) This Escrow Agreement sets forth exclusively the duties of the Escrow
Agent with respect to any and all matters pertinent hereto and no implied
duties or obligations shall be read into this Escrow Agreement against the
Escrow Agent. The Escrow Agent shall have no duties except those
specifically set forth in this Escrow Agreement and as imposed by applicable
law or court order.
(6) The parties agree and acknowledge that the Escrow Agent (i) has no
duty to disclose any matters with respect to the Company or the Shareholders
or Irwin that it becomes aware of in connection with acting as the Escrow
Agent, except as may be required by judicial or governmental process or
inquiry, in which case Escrow Agent shall promptly advise the Company and
Shareholders of the receipt of any such process or inquiry; and (ii) has no
duty to apprise any of the parties hereto of any decline in the value of the
Escrow Property.
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<PAGE>
The Company and Shareholders specifically agree and acknowledge that they are
not being represented in any capacity as legal counsel by the Escrow Agent
nor have they received any legal advice whatsoever from the Escrow Agent
previously or currently.
(8) The parties hereto acknowledge that the Escrow Agent may enter into a
custody account agreement in substantially the form of Appendix D attached
hereto and made a part hereof with such non-material changes thereto as
Escrow Agent may deem advisable to conform to the provisions hereof (the
"Custody Agreement") the form of which Custody Agreement is acceptable to the
parties hereto. None of the parties hereto shall take any action or omit to
take any action that would cause the Escrow Agent to violate the Custody
Agreement. The parties hereto agree that any and all indemnification
provided in favor of the Escrow Agent in this Escrow Agreement shall also
cover any reasonable action taken by the Escrow Agent with respect to the
Custody Agreement including the payment of any fees and expenses incurred by
the Escrow Agent. The Escrow Agent hereby agrees not to amend, modify,
supplement or waive any provision of the Custody Agreement or assign its
interests thereunder without the prior receipt of the written consent of the
other parties hereto. The Escrow Agent hereby further agrees to use its best
efforts to comply in all material respects with the terms and provisions of
the Custody Agreement. Copies of any notices or other communication from the
custodian of the Escrow Property received by the Escrow Agent shall be
promptly forwarded to the other parties hereto by the Escrow Agent.
Section 7. MISCELLANEOUS.
(a) Notwithstanding anything to the contrary contained in this Escrow
Agreement, the Escrow Agent shall have the right, but shall not be required,
to demand, in respect of any action whatsoever within the purview of this
Escrow Agreement, any showings, certificates, opinions, or other information
or corporation action or evidence thereof, in addition to that by the terms
hereof required as a condition of such action by the Escrow Agent deemed
desirable for the purpose of establishing the right of any party to the
taking of action by the Escrow Agent.
(b) The parties agree that this Escrow Agreement shall be governed by,
construed and interpreted under the laws of the State of California, without
regard to its principles of conflicts of law, and, if any party shall
institute suit to enforce any part of this Escrow Agreement, the sole proper
venue for such suit shall be in a State or Federal court of competent
jurisdiction located in the County of Los Angeles, State of California.
(c) This Escrow Agreement, the Settlement Agreement and the Voting
Agreement contain the entire agreement of the parties hereto with respect to
the subject matter hereof; provided, however, that the Escrow Agent is not a
party to nor is it bound by either the Settlement Agreement or the Voting
Agreement, and this Escrow Agreement may not be amended except by an
instrument in writing signed by all of the parties hereto.
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<PAGE>
(d) This Escrow Agreement may be executed in multiple counterparts, each
of which shall be deemed an original, but all of which shall constitute one
and the same instrument.
(e) The Shareholders agree that, for purposes of federal and other taxes
based on income, each Shareholder will be treated as the owner of his or her
respective share of the Escrow Property, and that each Shareholder will
report all income, if any, that is earned on, or derived from, the Escrow
Property as his or her income, in the taxable year or years in which such
income is properly included and pay any taxes attributable thereto. For so
long as the Escrow Agent (or its successor) holds the Escrow Property, and
for so long as no uncontested claims are made by the Company hereunder,
Shareholders shall continue to be deemed to be the registered owner of the
Escrow Shares; provided, however, the Shareholders have each entered into a
Voting Agreement dated of even date herewith (the "Voting Agreement") with
Mr. R. Lindsey Duncan ("Duncan") pursuant to which they have each granted
Duncan, with full power of substitution, a limited irrevocable proxy to
exercise all of their voting and consensual rights with respect to all of the
shares of Common Stock they beneficially own, including, without limitation,
the Escrow Shares (and any voting securities distributed or exchanged for
such Shares or into which such Shares may be converted) in their name and
stead as if they were present at any meeting of stockholders of the Company
and in connection with any solicitation of consents, in accordance with the
provisions of the Voting Agreement (a copy of which is attached hereto as
Appendix D). If requested by the Company, Escrow Agent shall execute and
deliver all such proxies, consents or other documents as Duncan or his
designee may direct in writing in order for Duncan or his designee to
exercise such specific and limited voting and consensual rights. Escrow
Agent agrees to furnish Irwin, acting or behalf of the Shareholders, with
copies of all requests for proxies, documents, proxy statements or other
shareholder communications, which Escrow Agent may receive from the issuer of
any of the securities comprising the Escrow Property, Duncan or his designee.
(f) The Escrow Agent shall not be deemed the owner of the Escrow Property
(record, beneficial, or otherwise) for any purpose, and except as provided in
subsection 7(e) above, shall have no responsibility for the voting of the
Escrow Property.
(g) The Company and Shareholders agree to execute and deliver to the
Escrow Agent all such further documents and other instruments, including
stock powers with medallion signature guarantees affixed thereto, as may be
necessary to implement this Escrow Agreement and the Settlement Agreement and
to deliver any of the Escrow Property, including the Escrow Shares, in a form
transferable by delivery.
Section 8. TERMINATION OF ESCROW
On the earlier of (A) the sale of the Company (whether by merger,
consolidation, sale of stock or sale of all or substantially all of the
assets of the Company), after delivery of
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<PAGE>
notice thereof to the Escrow Agent, or (B) the later of (x) the first
anniversary of the Spin-Off (as defined in the Settlement Agreement) or (y)
the second anniversary of the initial Deposit Date (the "Termination Date"),
after delivery of notice thereof to the Escrow Agent, Escrow Agent shall
distribute the remaining Escrow Property to the Shareholders pro rata to the
amounts of their respective shares of Common Stock then comprising the Escrow
Property unless (i) any disputed Claims are then pending, in which case a
number of shares of Common Stock (determined as provided in subsection 3(b))
reflecting the aggregate dollar amount of such Claims (as shown in the
Notices of such Claims) shall be retained by Escrow Agent as Escrow Property,
and the balance of each Shareholder's respective Escrow Property shall be
distributed to them; or (ii) the Company has given notice to Irwin, on behalf
of the Shareholders, and to the Escrow Agent, specifying in reasonable detail
the nature of any other Claim it may have under the Settlement Agreement with
respect to which it is unable to specify the amount of damages; or (iii) the
transfer to the Company of ownership of any shares of Common Stock comprising
Escrow Property pursuant to the liquidation of a finally determined Claim
(as described in Section 3(c)) remains subject to the receipt of any
governmental authorization which has not been received, notice of which has
been given to the Escrow Agent, in which case the specific number of shares
of Common Stock so at issue or so involved (or in the case of (ii) above, all
the Escrow Property) shall be retained by Escrow Agent, until it receives
joint written instructions of the Company and Irwin, acting on behalf of the
Shareholders, or a final non-appealable order of a court of competent
jurisdiction as contemplated by subsection 3(c).
Section 9. GRANT OF SECURITY INTERESTS; FURTHER ASSURANCES
Without otherwise limiting in any way the rights of the Company hereunder in
and to the Escrow Property, each of the Shareholders hereby grants to the
Company a continuing security interest in and to the Escrow Property owned by
such Shareholder as collateral security for the obligations of Irwin to the
Company under the Settlement Agreement. Escrow Agent shall, upon receipt of
the Escrow Property, be deemed to hold the same for the Company to the extent
required for attachment of such security interests in favor of the Company
under applicable provisions of Sections 8-313(1)(e) and 8-321(1) of the
Uniform Commercial Code of the State of California. Shareholders will, at
their own expense as from time to time requested by the Company, promptly
execute and deliver all further stock powers, financing statements,
instruments and other documents as the Company may reasonably deem necessary
or appropriate to perfect and protect the security interests and other rights
of the Company in and to the Escrow Property hereunder.
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IN WITNESS WHEREOF, the parties hereto have executed this Escrow Agreement as
of the date first written above.
WITNESS: COMPANY:
OMNI NUTRACEUTICALS, INC.
/s/ Christina Lam
- ----------------------------------
Name: Christina Lam By: /s/ R. Lindsey Duncan
---------------------------- ---------------------------------
Name: R. Lindsey Duncan
-------------------------------
Title: Chairman
------------------------------
Address: 10549 West Jefferson Blvd.
Culver City, CA 90232
Attn: Chairman of the Board
Telephone No.: (310) 255-5305
Telecopier No.: (310) 202-9454
With a copy to:
Peter A. Basilevsky, Esq.
Satterlee Stephens Burke & Burke LLP
230 Park Avenue, Suite 1130
New York, N.Y. 10169
Telephone No.: (212) 818-9200
Telecopier No.: (212) 818-9606
THE ESCROW AGENT:
WITNESS: WELLS FARGO BANK
_______________________________ By:___________________________
Name:__________________________ Name:_________________________
Title:________________________
Address: 111 West Ocean Boulevard
Suite 370
Long Beach, CA 90802
Telephone No.: (877) 317-7073
Telecopier No.: (562) 437-7934
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<PAGE>
WITNESS: SHAREHOLDERS:
/s/ Christina Lam /s/ Klee Irwin
- ---------------------------------- -----------------------------------
Name: Christina Lam Klee Irwin
-----------------------------
/s/ Margareth Irwin
-----------------------------------
/s/ Christina Lam Margareth Irwin
- ----------------------------------
Name: Christina Lam
-----------------------------
Address: 7825 Veragua Drive
Playa del Rey, CA 90292
Telephone No.: (310) 202-1416
Telecopier No.: (310) 823-5520
With a copy to:
Ernest Burger, Esq.
515 Flower Street
Suite 2100
Los Angeles, CA 90071
Telephone No.: (213) 488-1989
Telecopier No.: (213) 488-1981
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<PAGE>
APPENDIX A
NOTICE
TO: Wells Fargo Bank, as Escrow Agent
Klee Irwin
DATE:
---------------------------------
RE: Escrow Agreement dated as of October , 1999 by and among Mr. &
Mrs. Klee Irwin, Wells Fargo Bank ("Escrow Agent"), and Omni
Nutraceuticals, Inc. ("Company")
================================================================================
Pursuant to the above-referenced agreement ("Escrow Agreement"), please
be advised that the Company is hereby making a Claim against Irwin in the amount
of ______________________ shares of Common Stock ("Shares"). Accordingly, we
direct you to deliver a certificate evidencing the Shares as hereinafter
instructed.
Nature of Claim: The Claim is being made pursuant to Section (s)
_____________ of the Settlement Agreement by way of [guarantee]
[indemnification] for the [HealthZone Market Value][the following Losses
incurred by the Company]:
[LIST MATTERS FOR WHICH GUARANTEE AND/OR INDEMNIFICIATION IS CLAIMED]
Calculation of Amount of Shares: The shares to be delivered to the
Company have been calculated as follows:
[INSERT METHOD OF CALCULATION]
Delivery Instructions: Kindly deliver one or more certificates to the
Company's Registrar and Transfer Agent [INSERT NAME AND ADDRESS OF THE REGISTRAR
AND TRANSFER AGENT] with instructions that it issue a new certificate evidencing
the Shares and deliver such certificate to [INSERT NAME AND ADDRESS OF
RECEIPENT] By air courier, with a certificate evidencing the remaining balance
of the Common Stock, if any, to you by air courier for redeposit in escrow.
Very truly yours,
OMNI NUTRACEUTICALS, INC.
WITNESS:
_______________________________ By:___________________________
Name:__________________________ Name:_________________________
Title:________________________
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APPENDIX B
ESCROW AGENT'S AUTHORIZATION
TO: Wells Fargo Bank as Escrow Agent
DATE:
---------------------------------
RE: Escrow Agreement dated as of October , 1999 by and among Mr. &
Mrs. Klee Irwin ("Shareholders"), Wells Fargo Bank ("Escrow
Agent"), and Omni Nutraceuticals, Inc. ("Company")
===============================================================================
Pursuant to the above-referenced agreement ("Escrow Agreement"), you
are hereby authorized and directed to deliver the following Escrow Property
at a closing to be held on [SPECIFY DATE] at your offices, or such other
place as the undersigned and you may agree in writing:
[IDENTIFY CERTIFICATES AND NO. OF SHARES
AND OTHER ESCROW PROPERTY TO BE DELIVERED]
To the following parties (y):
[IDENTIFY THE PARTIES (Y) TO RECEIVE SUCH ESCROW PROPERTY]
Subject to the following terms and conditions:
[INSERT CONDITIONS, IF ANY, OTHERWISE STATE "NONE"]
The Company and the Shareholders hereby acknowledge satisfaction of all terms
and conditions, if any, set forth above.
WITNESS: COMPANY:
____________________________ By:________________________________
Name:_______________________ Name:______________________________
Title:_____________________________
WITNESS: SHAREHOLDERS:
____________________________ _____________________________
Name:_______________________ Klee Irwin
WITNESS:
____________________________ ____________________________________
Name:_______________________ Margareth Irwin
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APPENDIX C
FEES OF WELLS FARGO BANK AS ESCROW AGENT
TO BE PAID JOINTLY IN EQUAL SHARES BY IRWIN
AND THE COMPANY
BASIC ANNUAL FEE:
(BASED ON PERIODIC MARKET VALUE OF THE ESCROW PROPERTY)
ACCOUNT SIZE:
FIRST $2 MILLION .25%
NEXT $3 MILLION .15%
ON BALANCE .10%
MINIMUM ANNUAL FEE $5,000 COLLECTED IN ADVANCE
TRANSACTION CHARGES:
FREE RECEIPTS/DELIVERIES $25
DOMESTIC TRADES (BOOK ENTRY) $25
DOMESTIC TRADES (PHYSICAL) $50
MUTUAL FUND PURCHASE/SALE $35
GLOBAL TRADES $25 PLUS ACTUAL COST.
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